The marginal system LCOE of variable renewables - Evaluating high penetration levels of wind and solar in Europe

The marginal levelized cost of electricity (LCOE) for increasing the share of Variable Renewable Energy (VRE) is estimated using the electricity investment model greenVRE, which entails a detailed representation of the time dimension to account for variability and variation management. The model is applied to Europe (EU-27 + Norway and Switzerland), which the model divides into ten electricity balance regions and runs with 2920 time-steps The model is applied in a greenfield setting, in which the share of renewables (VRE + Hydro) varies between 0% and 100%. The results show that the system LCOE for VRE increases linearly with the penetration level range of 20%-80%, above which it increases sharply. Systems that have a high penetration of VRE are characterized by using wind power as the major generating technology and having strong expansion of transmission capacity. A sensitivity analysis for the cost of VRE and variation management capacity (storage and transmission) reveals that the point of increase in marginal LCOE is robust under different future scenarios regarding technology costs. We conclude that VRE could constitute the bulk of electricity generation at a reasonable cost, given that there is availability of variation management, especially with respect to transmission.