The Changing Costs and Values of Electricity

Generation Technologies: Measuring Profitability

and Evaluating Options for Integrating Renewables
Issue Brief 19-04 by Jay Bartlett — June 2019

The US electricity sector has been a favorable area for profits, and whether a new power plant is likely to be
reductions in carbon dioxide emissions, with CO2 from constructed. Generation value is composed predominantly
the power sector decreasing by 28% between 2005 and of energy and capacity values, which together provide the
2017. In addition to slightly lower electricity demand, market revenue available to the power plant.
the sources of CO2 emissions reduction have been the
substitution between different fossil fuels (mostly of Power Generation Costs
natural gas for coal-fired power) and the installation of
zero-carbon generation capacity (mostly wind and solar). 1. Fuel costs are the costs per megawatt-hour
The relative profitability of existing power plants and the (MWh) of electricity generation for fuel and
expected profitability of new installations explain much the resulting emissions. These costs depend
Variable Costs

of the recent trend in decarbonization and, along with on the price of the fuel delivered to the plant,
demand growth, will determine future electricity sector the efficiency at which the fuel is converted
emissions. Measuring the profitability of electricity- into power, and charges for emissions of CO2,
generation technologies requires accounting for their SO2, or NOX (if such charges exist).
values as well as their costs.1 In this brief, we examine 2. Variable operations and maintenance (O&M)
two approaches to assessing costs and values, first costs are the costs of power plant operations
Operating Costs

considering the cost and value of an individual power and maintenance incurred due to electricity
plant, and then considering the cost of a power plant production. Power equipment may deteriorate
to the entire electricity system.2 The dual approaches more quickly when generating electricity than
yield insights into the changing composition of power when the plant is idle, requiring increased
generation, often unseen system costs, and the likely repair or replacement of parts.
effects of grid integration options, such as energy storage. 3. Fixed O&M costs are the costs of power plant
operations and maintenance that are incurred
Total Costs

Individual Approach: The Cost and whether or not the power plant is generating
electricity (for example, the costs of regular
Value of a Single Power Plant maintenance, monitoring, and inspection).
An individual power plant’s profitability is a market 4. Capital costs are the costs of power plant
determination of the value less the cost of the plant’s development and construction. They are
generation. Power generation costs fall into five general incurred before the plant produces electricity
categories (four are listed in the subsection below, and and consist of equipment (including
the fifth is discussed later in this section). Adding up emissions reduction equipment), installation
those costs informs whether an existing plant will generate and construction labor, permitting and
electricity, whether an existing plant will earn operating interconnection costs, and contractor
overhead.
For existing facilities, only the variable costs—fuel and the price of electricity were constant, LCOE would
variable O&M costs—are relevant to which power plants be a reasonable proxy for the profitability of different
will produce at a given time. Solar and wind have no technologies. However, since solar and wind are
fuel or variable O&M costs, so they will generate power intermittent generators and the price of electricity does
whenever the sun shines or wind blows (as long as they vary over time, LCOE is inadequate for comparing
do not need to be curtailed).3 Additionally, changes in intermittent technologies with each other or with
fuel costs have altered the utilization of existing fossil dispatchable technologies such as natural gas.
power plants. Whereas Henry Hub natural gas prices
were generally above $6/MMBtu between 2005 and Power Generation Value
2008, they have averaged less than half that amount
over the past four years. As a consequence, average In addition to considering costs, we also need to
utilization (known as the capacity factor) of natural gas assess the prices that a power plant will receive for its
combined-cycle generators has increased from 35% in electricity output. Wholesale power prices indicate the
2005 to 58% in 2018; meanwhile the capacity factor of energy value available to power plants. Although there is
coal plants declined from 67 to 54% over this period. variation in how frequently and at what geographic scale
With the CO2 intensity of coal-fired power roughly wholesale power prices are determined, the wholesale
twice that of natural gas combined-cycle generation, power price is generally a time- and location-specific
the increased utilization of natural gas and decreased value of electricity. Such prices suggest the current
utilization of coal have been significant factors in recent energy revenue that a plant could realize, but the
emissions reductions. relevant prices for new plants are those that will occur
over the next 20 to 30 years (the lifetime of most power
For unbuilt power plants, all four cost categories are plants). Forecast time- and location-specific prices
relevant when gauging the expected future profitability would be essential for a project developer, but these
of the plant. Moreover, since different generation projections would not provide a geographically broad
technologies incur their costs at different times (e.g., measurement of the future energy value for a particular
solar and wind have large capital costs but no fuel or type of power generation. Additionally, in many regions
variable O&M costs), it is necessary to compare all costs of the country, power plants receive capacity payments
in terms of present discounted values over the expected for their contribution to grid reliability, which must be
operating life of the plant. The common metric, levelized included in a complete measurement of value.4
cost of electricity (LCOE), does exactly that:
The US Energy Information Administration (EIA)
Levelized Present Value of All
developed a measurement of the value available
Cost of Plant Costs $
= = to a new power plant. EIA’s levelized avoided cost
Electricity Present Value of MWh of electricity (LACE) is an estimate of the cost of
(LCOE) Electricity Generation
providing energy and capacity to the grid that would
be avoided (or displaced) if the new power plant were
Since all costs and electricity are discounted to their
to operate. The avoided cost to the grid is equal to the
present values, LCOE involves a fifth category, the cost
revenue available to the power plant, so LACE provides
of capital, which determines the rate at which both costs
an assessment of potential plant revenues. While LACE
and electricity production are discounted over time.
is not used by EIA to determine capacity additions,
For example, a technology with a high cost of capital
outputs of EIA’s National Energy Modeling System
will have a lower present value of electricity and thus
(NEMS) are used in LACE calculations.
a higher LCOE. Further, more electricity production
reduces LCOE, so a plant that operates more often or Present Value of Energy
with greater efficiency will have lower levelized costs. Levelized
Avoided Cost = and Capacity Revenue $
=
of Electricity Present Value of MWh
If all generation technologies were dispatchable—
(LACE) Electricity Generation
capable of producing electricity at any time—or if

Resources for the Future 2

Energy revenue for a particular time period (e.g., System Approach: The Generation
summer daytime) is estimated by multiplying the
forecast electricity price by the annual number of
and Integration Costs of a Power
megawatt hours of electricity the plant is expected to Plant
generate during that time. Energy revenue would also
include the price of meeting environmental policies, An alternative approach to assessing the net value
such as a state’s renewable portfolio standard, if the of a new plant is a system approach that takes the
generator displaced is nonrenewable. Annual energy perspective of a social planner, assessing the total
revenue is the sum of energy revenue for each time costs that an additional power plant would have on the
period across the year (EIA uses nine time periods). electricity system. The total system cost combines a
Capacity revenue is the capacity payment, the amount new plant’s generation cost with the cost it imposes on
necessary to achieve system reliability, times the existing plants and the grid itself—its integration cost.
percentage capacity credit. In LACE, dispatchable plants The generation cost of a power plant to the system
are given a capacity credit of 100%, but intermittent is identical to the generation cost of the power plant
renewables receive less than 100% based on their ability to itself. Since all components of generation cost are
to reliably provide capacity. Total revenues (energy relevant, LCOE is the appropriate metric.
plus capacity) and electricity generated are discounted
to their present values at the plant’s cost of capital, The individual and system approaches diverge with
giving LACE the same units ($/MWh) as LCOE.5 respect to integration costs. Whereas the individual
approach relies on market values to reflect diminishing
values of generation to the grid, the system approach
Value-Cost Comparison
makes a direct evaluation of integration costs. Just
A power plant is profitable if the market value of as intermittent technologies require market values,
its generation exceeds its costs of producing that in addition to LCOE, to assess their profitability,
electricity. An existing plant will generate whenever intermittent technologies impose additional integration
prices exceed variable costs, and it will have operating costs that must be included in their system costs.
profits if prices exceed all operating costs (fuel and Dispatchable plants also impose integration costs,
variable O&M costs, as well as fixed O&M costs). For a but the integration costs of intermittent technologies
prospective plant, investors would require that expected increase more rapidly with greater penetrations of
future prices exceed LCOE by a sufficient margin intermittent generation. Additionally, the trade-offs
in order to commit financing. While developers of a between minimizing integration costs and generation
prospective plant would make an estimated value-cost costs are less significant for most dispatchable plants.
comparison at a specific location, EIA presents more For example, the ranges in average 2021 LCOE in
general measures of profitability by computing value- EIA’s 22 regions are $38.1–$48.5/MWh for natural gas
cost ratios (LACE/LCOE) in each of the 22 electricity advanced combined cycle versus $41.7–$111.6/MWh for
supply regions of the United States represented in unsubsidized solar photovoltaic (PV) projects. Whereas
the NEMS Electricity Market Model. The minimum, natural gas plants can be sited to minimize integration
maximum, simple average, and capacity-weighted costs with only minor effects on LCOE, the same is not
average LACE/LCOE ratios indicate how likely a true for solar—solar LCOE is highly sensitive to location.
particular generation technology is to be installed, as
well as the geographic extent of its profitability.

The Changing Costs and Values of Electricity Generation Technologies 3

Plant Integration Costs grid, rather than the power plant, curtailment costs
are a component of integration costs.
To provide a complete measurement, the integration 5. Residual generation costs are primarily the costs
costs of an additional power plant must include to the existing fleet of running at a lower capacity
all costs borne by the system that result from the because of the addition of a power plant. Whereas
plant’s installation. Various bottom-up estimates of adequacy costs reflect fleet redundancy, residual
wind and solar integration costs capture the costs generation costs reflect inefficiency in fleet
of managing the variability of wind and solar, but operations. Such costs are significant for a new
engineering estimates may miss other economic costs wind or solar plant, which has no variable costs
that are relevant to integration. A full accounting of and thus is often first in line to produce power for
integration costs of any additional plant (dispatchable the grid. Consequently, other generators—such as
or intermittent) comprises the following five categories, coal and natural gas—will produce less electricity,
each of varying significance based on such factors increasing their LCOE. If such a plant becomes
as the technology, resource availability, transmission unprofitable and retires prematurely, there will
network, load profile, storage capacity, and generation be a cost from the “stranded asset”—borne
mix. Integration costs may occur in the short term by ratepayers, generators, and distribution
(before the grid has fully adjusted following the plant’s companies—which may be a significant short-
installation) or over the long term. Lastly, integration term cost (in the long term, retired plants no longer
costs are those due to new generation rather than to impose costs on the system). A secondary cost in
changes in demand. Transmission expenditures, for this category is due to increased cycling of coal
instance, may rise with growing electricity demand in a and gas plants because of predictable variation in
particular location, but such costs would not be due to intermittent generation. Cycling—the ramping up
plant integration. and down of production—increases O&M costs
for generators, but these expenses appear to be
1. Balancing costs are the costs of managing the minor in comparison to the costs of operating at
unpredictability of generation. Wind and solar have reduced capacity and from stranded assets.
both predictable and unpredictable components
of their variability—solar will predictably not While these cost categories are not fully independent
generate at night, but it will unpredictably reduce of each other (transmission costs and curtailment
output if a daytime hour is unexpectedly cloudy. costs are an obvious example of interdependence),
2. Grid/transmission costs are the costs of building considering the cost components reveals how plant
transmission to an area with high-quality energy integration cost might be reduced. The total system
resources, as well as increasing transmission cost of a power plant is simply the sum of its levelized
capacity in an area where a new power plant generation and integration costs.
causes grid congestion.
3. Adequacy/backup costs are the costs incurred by Comparing the Individual and
the system because certain existing generators,
which would retire if the new plant were System Approaches
dispatchable rather than intermittent, are kept
The individual and system perspectives provide
online to provide adequate capacity to the grid.
different information, and each is useful.7 Both
Adequacy costs reflect redundancy of capacity,
approaches use widely available generation cost
and they vary inversely with the reliable capacity
information, but the individual approach also uses
that the new plant is able to provide to the grid.
market values (or proxies for market values, such as
4. Curtailment/overproduction costs are the costs
LACE). The individual approach to estimating plant
from power generation that cannot be used on
profitability is thus fully based on market data and
the grid and thus is wasted.6 Curtailment causes
expectations, and the calculation adjusts to changing
plant electricity production to decline and thereby
market conditions (however, with project lifetimes of
LCOE to rise. Since curtailment is a function of the

Resources for the Future 4

20 years or more, estimates of future values are highly average solar price of $25/MWh in California. Although
uncertain). As detailed in the next section, quantifying these prices are below the average LCOE for wind
the costs and values of a generation technology over and solar, these projects also receive tax credits and
time provides an estimate of its evolving social value. deductions, and they may additionally receive revenue
However, the individual approach does not reveal the from capacity markets or value from renewable energy
causes and magnitudes of increased system costs due certificates (or RECs, the environmental attributes
to adding intermittent renewables. The five integration of their electricity). More concerning than the low
cost categories describe why system costs would rise, wholesale prices are their trends, particularly for solar. In
and system models estimate integration costs at varying an analysis of the California market from 2012 to 2016,
percentages of renewables on the grid. In doing so, the authors found that the 10,000th MW of solar earns
the system approach informs which prospective grid 52% less energy revenue than the 2,000th MW and that
changes could mitigate future integration costs. the 6,000th MW of wind earns 20% less energy revenue
than the 1,000th MW; hourly prices fall as solar and wind
Declining Costs and Values of Solar additions displace generation with higher variable costs.
Projected values show further declines with increasing
and Wind Generation solar and wind penetration; an LBNL study of California
found that a 30% penetration of solar would result in a
Generation Costs 72% decrease in its marginal economic value (inclusive
of values from energy, capacity, and ancillary services)
Over the past decade, the generation costs of solar and
and that a 40% penetration of wind would result in a
wind have fallen dramatically. The financial institution
40% decrease in its marginal economic value. Although
Lazard has provided LCOE estimates for wind and utility-
solar initially receives above-average prices because of
scale solar PV (among other technologies) for the past
high electricity demand in the afternoon, the midday-
dozen years, using ranges of capital cost, O&M cost,
concentrated generation profile of solar causes its
capacity factor, and discount rate assumptions. The
prices to erode rapidly with increased penetration (a
firm’s mean estimates for unsubsidized wind and solar
consequence of the “duck curve”).
LCOE fell from $135/MWh and $359/MWh, respectively,
in 2009 to each being just $43/MWh in 2018, implying
cost reductions of 69% for wind and 88% for solar over Generator Profitability
the past nine years. Future reductions in generation
To provide a countrywide assessment of current and
costs are expected, albeit at a more modest rate. In its
future generator profitability, EIA publishes ratios of
Annual Technology Baseline, the National Renewable
LACE to LCOE for plants installed in the near term (2021
Energy Laboratory (NREL) projects that the unsubsidized
and 2023) as well as for plants installed in 2040. In these
LCOE of utility-scale solar in a moderately sunny location
ratios, LCOE includes any federal tax credits available in
(Kansas City) and with midpoint assumptions will decline
the particular year, and LACE includes capacity revenue
from $37/MWh in 2018 to $25/MWh in 2040. For
as well as energy revenue. Moreover, energy revenue in
wind, using a mid-category wind resource and average
LACE includes the cost of meeting a state’s renewable
assumptions, NREL projects that unsubsidized LCOE will
portfolio standard (RPS) if the generation displaced is
decrease from $42/MWh to $31/MWh over this period.
nonrenewable (e.g., a natural gas generator in an RPS
state would have to purchase RECs). A ratio greater
Generation Values than 1 indicates that the projected revenue available to
a new power plant (LACE) exceeds its cost (LCOE), so
A simple but incomplete measure of generation value
an installation would expect to be profitable. For plants
for a power plant is average wholesale electricity
entering service in 2021, the LACE/LCOE ratios in the
prices, weighted by the hourly amount of its generation.
22 EIA regions range from 0.6 to 1.23 for wind and from
Lawrence Berkeley National Laboratory (LBNL) analyses
0.61 to 1.20 for solar. For plants entering service in 2040,
of 2017 data found average regional electricity prices
LACE/LCOE ranges from 0.63 to 1.08 for wind and 0.69
for wind of $14–$28/MWh across the country and an

The Changing Costs and Values of Electricity Generation Technologies 5

to 1.19 for solar. As EIA projects only moderate decreases than balancing costs and increase with renewables’
in wind and solar costs (which are offset by declining tax penetration, but costs spent on transmission allow
credits) and small shifts in value, the profitability ratios for accessing high-quality solar and wind resources
do not change substantially.8 and limiting curtailment. Thus there is a trade-off
between higher grid costs and lower generation
Integration Costs and Opportunities costs (LCOE) and curtailment costs. The last three
integration cost categories—adequacy, curtailment, and
for Reductions residual generation costs—together have the greatest
opportunity for total system cost reduction, and
The system cost approach allows us to evaluate various
increasingly so as intermittent renewables expand their
solutions that have been proposed for integrating
share of generation. Among the options, flexible demand
intermittent generation. First, it is useful to review
and energy storage have the potential to significantly
some modeled and empirical results on the magnitude
reduce costs in all three of these categories. In regard to
of total integration costs and their components. In a
energy storage, developers of solar projects have already
2013 modeled European grid, total integration costs
started bundling battery storage with solar; the number
for wind are roughly €40/MWh when the proportion
of power purchase agreements for solar plus storage
of wind generation reaches 25% (in comparison, the
increased from 4 in 2017 to 16 in 2018. With respect to
LCOE of German wind in optimal locations was €60/
flexible demand, it has the long-term capabilities to
MWh). Of this total, about one-third of integration costs
mitigate both curtailment and declining market values
are due to balancing and transmission needs, while the
of wind and solar in high-penetration scenarios. An RMI
other two-thirds are the result of backup and residual
modeled analysis of ERCOT in 2050 found that flexible
generation costs. Curtailment costs become significant
demand could increase wind and solar values by 36%
only for wind generation greater than 25%, but they grow
and reduce curtailment by 40%. That such integration
rapidly beyond that point. For solar in Arizona, similar
options as energy storage and flexible demand can both
integration costs are estimated; 20% penetration of solar
reduce integration costs and increase generation value
would cause $6/MWh in losses due to unpredictable
may contribute to interest in their usage.
intermittency (balancing costs) and $40/MWh in losses
due to predictable intermittency (backup and residual
Table 1 does not detail how plant integration options
generation costs). Finally, in recent research on US
would be achieved, all of which would involve costs of
RPS policies, retail electricity prices 7 and 12 years after
their own, from the installation and operation of thermal
passage of an RPS are found to be 11% and 17% higher,
systems for space heating (flexible demand) to the
respectively. Since differences in generation costs
construction and operation of battery facilities (energy
between renewables and nonrenewables cannot explain
storage).10 As such, while plant integration options may
the price increases, the authors conclude that integration
be effective at reducing integration costs, the benefits
costs are a probable cause of rising system costs.9 With
of their deployment do not necessarily outweigh their
an understanding of integration costs and the relative
costs. Furthermore, it is not obvious which particular
importance of each category, Table 1 lists options for plant
technologies will be the most efficient. What is clear is
integration and their prospective effects on the costs of
that if intermittent renewables are to continue to grow
integrating intermittent renewables.
as a percentage of total generation, one (or likely many)
of these options would be necessary to limit the costs
The assessments of plant integration options in Table 1,
they impose on the grid and support their profitability.
in combination with the estimates of integration costs,
The implication of Table 1 is that only energy storage
indicate both the areas with the largest potential for
and flexible demand options have the potential for
cost reductions and the potential solutions that are most
reduction within several of the integration cost categories.
likely to be effective. From the integration cost studies,
For example, in the case of solar in a grid with a large
balancing costs both are comparatively modest and
proportion of natural gas combustion turbines, flexible
do not increase substantially with rising proportions of
supply would keep residual generation costs low, but
intermittent renewables. Grid costs are more significant
costs from curtailment could still be prohibitive.

Resources for the Future 6

Table 1. Plant Integration Options: Descriptions and Likely Effects on Integration Costs
Plant Integration Options*

Demand-Side Supply-Side
Options Options

Flexible Demand Demand Flexible Supply Energy Storage Transmission

Response Build-Out
Power Plant Shifting demand to Increasing the Storing electricity from
align with intermittent proportion of periods of low to high
Integration generation; includes Short-term reduction of dispatchable prices; includes Building transmission
electricity consumption between areas with
Cost water heating, space in response to a generators with lower flywheels, batteries, high-quality solar or
heating and cooling, fixed costs (e.g., natural pumped hydro,
Category** plud loads and EV sudden decrease in gas rather than coal or compressed air, wind resources and
supply areas of high electricity
charging nuclear) thermal storage, and demand
hydrogen

No Effect Reduced Limited Effect Reduced Limited Effect

Balancing Balancing costs Balancing costs Only a small amount Particularly with Potential for local
Costs relate to managing would decline as of flexible supply is short-duration reductions in
the unpredictable demand responds to needed to manage storage options balancing costs in
(€5/MWh) variation of unpredictable drops unpredictable areas with limited
generation in supply variation flexibility

Limited Effect Limited Effect Limited Effect Limited Effect Increased

Transmission / Potential for less Potential for less Potential for less Potential for less Building out
Grid Costs local transmission local transmission local transmission local transmission transmission directly
needs if demand is needs if local needs if local supply needs with increased increases grid costs
(€15/MWh) better matched to demand response is more flexible local energy storage
supply options exist

Reduced Limited Effect Limited Effect Reduced Limited Effect

Adequacy / Less need for Demand response Moderately reduced Less need for Potential for local
Backup Costs redundant capacity may substitute for a need for additional redundant capacity reductions in backup
if more demand is small number of backup if supply mix if more energy can costs in areas with
(€7/MWh) made coincident wih peaker plants is more flexible be stored until limited flexibility
supply periods of low
supply

Reduced No Effect Limited Effect Reduced Reduced

Curtailment / Less generation will Unless demand can If curtailment is Less generation will However, it depends
Overproduction be curtailed if more absorb additional caused by inflexible be curtailed if energy on the extent of
demand is made supply, demand supply (e.g. nuclear), can be stored until correlated genera-
Costs coincident with response would not greater flexibility periods of low tion and loads in
(€22/MWh) supply affect curtailment would reduce supply neighboring areas
curtailment

Reduced No Effect Reduced Reduced Limited Effect

Residual
Generation With more demand Demand response With more flexible With more energy Potential for local
coincident with would substitute for supply, there are storage, fewer reductions in
Costs supply, fewer peaker plants, which reduced costs to baseload generators residual generation
(€16/MWh) baseload generators operate with low operating at lower would be needed costs in areas with
would be needed capacity factors capacity limited flexibility

* These options may also affect the costs of managing electricity demand (e.g. due to a spike in consumption during a hot summer afternoon), but such
costs are separate from plant integration costs.
** Approximate magnitude of long-term integration costs in 40% wind power scenario. From Figured 9 and 10 in Falko Ueckerdt, L. Hirth, G. Luderer, and
O. Edenhofer (2013), “System LCOE: What Are the Costs of Variable Renewables?” Energy 63 (15 December): 61-75.

The Changing Costs and Values of Electricity Generation Technologies 7

Conclusion take different approaches, both methods yield the
same optimal value for the amount of intermittent
This brief considers different measures for comparing renewables on the grid.
electricity-generating technologies. We find that 8 EIA projects an increase in the penetration of solar
measuring generation value, in addition to generation from 3.6 % in 2021 to 11 % in 2040, so it is not entirely
cost, becomes increasingly important as we shift toward clear why the range in values (LACE) does not decline
greater reliance on intermittent resources. Measuring over this period. Potential reasons include the growth
integration costs further allows us to understand in flexible demand and energy storage, as well as
the deterrents to increasing shares of intermittent rising natural gas prices and strengthening state RPS
renewables and indicates which integration options have and climate policies (as in California). However, more
the ability to help address those costs. research is needed to fully explain the differences
between solar-weighted wholesale electricity prices and
Notes LACE calculations.
9 The paper uses a reduced-form analysis, so it is
1 Note that this does not directly include such external not possible to attribute shares of the system price
costs as the social cost of carbon or other emissions increases to generation costs and integration costs.
if current policies do not fully account for them. However, since the system price increases are
External environmental costs are reflected in these significantly greater than the difference between
measurements only through a higher cost of capital due nonrenewable and renewable generation costs, the
to future regulatory risk. authors conclude that integration costs are a likely
2 This brief is limited to the electricity sector, and thus factor.
it does not include such technologies as rooftop solar 10 Note that a technological or market change could
PV that compete with retail, rather than wholesale, affect multiple options. For example, a programmable
electricity prices. thermostat responding to real-time prices could
3 Curtailment occurs when power production exceeds the accomplish both demand response and flexible demand.
local capacity of the grid to use the electricity. It could
result from high generation, low demand, insufficient
transmission to move the electricity to reach available
demand, or inflexible generation (such as nuclear) that
cannot respond to excess grid supply. Resources for the Future (RFF) is an independent,
nonprofit research institution in Washington, DC. Its
4 In addition to energy and capacity revenue, power
mission is to improve environmental, energy, and natural
plants may receive compensation for providing
resource decisions through impartial economic research
ancillary services, such as adjusting generation to
and policy engagement. RFF does not take positions on
balance supply and demand on the grid. Ancillary
specific legislative proposals and this memo is not an
services typically represent a small proportion of total
endorsement of the Carbon Dividends Plan.
electricity prices.
5 EIA presents simplified LCOE and LACE formulas with Jay Bartlett is a Senior Research Associate at
“expected annual generation hours” in the denominator Resources for the Future, where he works on financial,
rather than using present value calculations. However, economic, and policy analysis for the Future of Power
if changes to costs, values, or electricity production Initiative. His current focus is clean energy project
are expected over time, discounting cash flows and finance.
electricity generation to their present values is a
preferable method.
6 See note 3 on curtailment.
7 Although the individual and system perspectives

Resources for the Future 8