Power System

The resultant economics per unit of generation for wind and solar power are presented in Table 3. LCOE (column 2) corresponds to the assumptions presented in Table 2. Market revenue (column 3) is calculated as the technology generation profile (Figure 2b) multiplied by the market price (Figure 2a). Wind power makes 2 USD/MWh more revenue from the market during the day, 34 USD/MWh, than solar power. However, it offsets the difference in their LCOE: 5 USD/MWh. Therefore, together with the fixed equal feed-in premium in the YELLOW scenario (column 4), solar power becomes the more profitable technology while wind power does not generate profit (column 7). Therefore, in the YELLOW scenario, only solar technology is auctioned.


**Table 3.** Unit economics of solar and wind in the model based on the one-day profile, USD/MWh.

For the first round of the auction, in the GREEN scenario, the revenue from the reliability premium for solar and wind (Table 3, column 5) is the same, resulting from the average hourly reliability premium multiplied by the hourly generation. Due to the

difference in costs, though, solar power is still more profitable than wind power (column 8). Thus, solar power is selected in the first phase. The reliability premium profile is recalculated after the first phase to reflect the added solar generation in the system. Now, the premium is zero during solar power peak and higher during mornings and evenings. The premium revenue is thus substantially lower for solar power and comparatively better for wind power (column 6). Overall, however, the need for power is reduced; thus, the possible revenue from the reliability premium is lower than in the first round. With this change in premium revenue, wind power becomes more profitable than solar power (column 9). Thus, wind technology is auctioned in the second phase. Thus, solar power is selected in the first phase. The reliability premium profile is recalculated after the first phase to reflect the added solar generation in the system. Now, the premium is zero during solar power peak and higher during mornings and evenings. The premium revenue is thus substantially lower for solar power and comparatively better for wind power (column 6). Overall, however, the need for power is reduced; thus, the possible revenue from the reliability premium is lower than in the first round. With this change in premium revenue, wind power becomes more profitable than solar power (column 9). Thus, wind technology is auctioned in the second phase. The resultant generation compositions are presented in Figure 3. In the YELLOW

average hourly reliability premium multiplied by the hourly generation. Due to the difference in costs, though, solar power is still more profitable than wind power (column 8).

The resultant generation compositions are presented in Figure 3. In the YELLOW scenario (left), the investment incentive generated by the feed-in premium favors solar power. In the absence of other market signals or regulator's intervention, only solar power is auctioned and built. Such a generation fleet leads to the peak generation exceeding demand during the day and insufficient generation during mornings and evenings, which is compensated for by the extra combined cycle generation. scenario (left), the investment incentive generated by the feed-in premium favors solar power. In the absence of other market signals or regulator's intervention, only solar power is auctioned and built. Such a generation fleet leads to the peak generation exceeding demand during the day and insufficient generation during mornings and evenings, which is compensated for by the extra combined cycle generation.

*Sustainability* **2021**, *13*, x FOR PEER REVIEW 10 of 18

**Figure 3.** Resultant power generation composition under the feed-in premium in the YELLOW scenario (a) and under the reliability premium in the GREEN scenario (**b**). **Figure 3.** Resultant power generation composition under the feed-in premium in the YELLOW scenario (**a**) and under thereliability premium in the GREEN scenario (**b**).

In the GREEN scenario (Figure 3 right), due to changing reliability premium, solar power is produced during the first phase and wind power is produced during the second. Together, the two resources (assumed to be complementary in this stylized case) are sufficient to meet the demand almost entirely. The existing 5 GW of flexible generation is enough to cover minor discrepancies during the evening. Such a scenario results in a very different system (Table 4). In the GREEN scenario (Figure 3b), due to changing reliability premium, solar power is produced during the first phase and wind power is produced during the second. Together, the two resources (assumed to be complementary in this stylized case) are sufficient to meet the demand almost entirely. The existing 5 GW of flexible generation is enough to cover minor discrepancies during the evening. Such a scenario results in a very different system (Table 4).

**Table 4.** Characteristics of the resultant power systems in the two scenarios. **Scenario YELLOW GREEN Support Type Fixed Feed-In Premium Reliability Premium Generation mix, GWh/year**  Base load 175 200 47 % 175 200 45 % Flexible generation 65 518 18 % 4 015 1 % Solar PV 131 948 35 % 87 965 23 % Table 4 first shows what is already visible in Figure 3. In the YELLOW scenario, a lot of solar power needs additional flexible backup capacities to cover mornings and evenings. In the GREEN scenario, the role of flexible generation is minimized, and complementary wind and solar together contribute to a major part of the overall power generation. The striking difference between the two scenarios, however, lies in their costs. The overall investment in renewable energy sources is clearly higher in the GREEN scenario. Thus, the costs for support policies are also higher. However, the costs of extra flexible generation are a significant setback of the YELLOW scenario, which overrides the lower costs for renewable energy sources.

Wind - - 117 895 31 % **Costs (25-year lifespan), billion USD** Renewable energy fleet cost 162 24 % 267 67 % New gas fleet cost 457 67 % - 0 % Support cost (premiums) 66 10 % 132 33 % In total, the GREEN scenario portrays a 30% more cost-effective system (not accounting for the baseload generation costs, which are equal in both scenarios), which is a 165 billion USD difference accumulated over 25 years, which translates to 7 billion USD saved annually. Of course, this holds only for this idealistic case with a relatively high anti-correlation of renewable power generation assumed. However, the lesson learned is that, if a system possesses some complementarity of renewable energy sources, it can be harvested by channeling the needs of system reliability into investment incentives.


**Table 4.** Characteristics of the resultant power systems in the two scenarios.
