Capturing the Economic Dynamics of Competing Power Generation Sources

Competing power generation sources have experienced considerable shifts in both their revenue potential and their costs in recent years. The paper presented in this Decarbonization Seminar here introduces the concept of Levelized Profit Margins (LPM) to capture the changing unit economics of both intermittent and dispatchable generation technologies. The authors apply this framework in the context of the California and Texas wholesale power markets. The LPM estimates indicate that solar photovoltaic and wind power have both substantially improved their competitive position during the years 2012-2019, primarily due to falling life-cycle costs of production. In California, these gains far outweigh an emerging „cannibalization“ effect that results from substantial additions of solar power having made energy less valuable in the middle of the day. The paper also finds the competitiveness of natural gas power plants to have either improved or held steady. For these plants, declining capacity utilization rates have effectively been co­unterbalanced by a „dispatchability price premium“ that reflects the growing market share of intermittent renewables.