System Integration Cost of

PhotoVoltaic Power Generation

Overview of the scenarios, data, and parameters to be considered for

the comprehensive cost/benefit analysis of PV investments

Danny Pudjianto, Predrag Djapic, Goran Strbac

Imperial College London, October 2012

TABLE OF CONTENT
1 Introduction ......................................................................... 3
1.1 THE PV PARITY PROJECT ........................................................................... 3
1.1.1 Project strategic objectives ................................................................................ 3
1.1.2 Project partners ................................................................................................. 5

2 System Integration Cost of PV Generation ...................... 6

2.1 Context ........................................................................................................... 6
2.2 Scope ............................................................................................................. 6

3 Capacity Value and Additional Capacity Cost of PV ....... 8

3.1 Approach ........................................................................................................ 8
3.2 Input data ....................................................................................................... 9
3.3 Parameters ..................................................................................................... 9
3.4 Illustration ....................................................................................................... 9

4 Transmission and Balancing Cost of PV ........................ 11

4.1 Approach ...................................................................................................... 11
4.2 Scenarios ..................................................................................................... 12
4.3 Input Data ..................................................................................................... 13

5 Distribution Network Cost of PV ..................................... 14

5.1 Approach ...................................................................................................... 14
5.2 Parameters and data requirements .............................................................. 15

2
1 1 Introduction
Introduction

1.1 THE PV PARITY PROJECT

The PV PARITY project aims at defining grid parity, i.e. achieving a stage of
development of the PV technology, at which it is competitive with conventional
electricity sources. It will also provide relevant policy makers in the EU Member
States with a clear understanding of the necessary measures to support solar PV
technology in achieving grid parity. The project will also develop strategies for
supporting the PV sector after grid parity is reached. As a result, an increased PV
penetration in EU electricity markets and grid will be accomplished at the lowest
possible price for the community.

The consortium is made up of knowledgeable partners from the research and academic
sector, from the industry and from the energy production sector. The project focuses on 11
EU countries, namely Austria, Belgium, Czech Republic, France, Germany, Greece, Italy,
The Netherlands, Portugal, Spain and United Kingdom. The country selection aims to
cover a large proportion of the EU electricity market and to be representative of various
country configurations in terms of electricity prices, maturity of the national PV market and
growth potential in the coming years. Some MENA countries will also be considered, in
view of their high PV market potential.

The project starts from the assumption that the goal of existing support schemes is to help
the PV technology become competitive with conventional electricity sources in the coming
years. However, the support to PV from policy makers is under heavy pressure and some
countries are already experiencing signs of a downturn in the level of support from policy
makers as well as from the public opinion.

1.1.1 Project strategic objectives

The strategic objective in the long-term of the PV Parity project is to ensure an appropriate
policy framework for photovoltaics in order to achieve up to 12% of the EU electricity
demand by 2020. This target for 2020 will imply reaching a total installed capacity of about
390 GWp according to the EPIA, SET For 2020 study. In order to achieve this aim, in the
first part of the project, the steps necessary to define grid parity will be carried out. This
implies to identify the parameters which may influence the grid parity:

• PV generation costs - projections;

• electricity prices, especially in the coming decade – projections;
• the impact of PV generation on base, medium and peak-load generation in terms of
technical and economic challenges and opportunities;
• the role of technologies that can be used to minimise the cost or maximise the
benefits of PV such as storage, demand response).
• electricity transmission and distribution costs

3
In Figure 1 the parameters influencing the PV parity are shown.

Figure 1: Parameters influencing PV parity: the classical, limited approaches, which only
look at PV generation and electricity prices, and the more sophisticated approaches used
in the project. Source: ECN, Wim Sinke.

The project will also present information which is needed to identify support schemes most
appropriate to reach grid parity and also include information on PV market developments
and regulations in several European and MENA countries.

The PV Parity project starts in June 2011 and will end in November 2013. The PV Parity
project will be co-financed by the European Commission in the framework of the Intelligent
Energy Europe (IEE) Program (Contract No. IEE/10/307 / SI2.592205).

4
1.1.2 Project partners

The list of the partners cooperating in this project is shown below. More information about
them and the project is available under www.pvparity.eu.

WIP www.wip-munich.de

EPIA www.epia.org

ECN www.ecn.nl

TUC www.enveng.tuc.gr

SUER www.stiftung-umweltenergierecht.de

GSE www.gse.it

EGP www.enelgreenpower.com

ICL www.imperial.ac.uk

TUW www.tuwien.ac.at

IDAE www.idae.es

EDF EN www.edf-energies-nouvelles.com

5
 2 System Integration Cost of PV Generation
2 System Integration Cost of PV Generation
2.1 Context
Penetration of PV technology is likely
to have impacts on our energy system
that need to be understood and
analyzed quantitatively. In this project,
we will evaluate the impacts of
increased penetration of PV
technology on European electricity
systems and quantify the system
integration cost and benefits of PV.
The analyses will focus on the impacts
of PV on the capacity of generation,
main European transmission
corridors, and distribution system as
well as the impacts of PV on the
operating reserve requirements and
losses. The system costs and system
benefits of PV will also be quantified.
Insights from these studies will be
used to inform the work on
determining the grid parity of PV
technology.
In order to evaluate the grid parity of PV
technology, it is necessary to understand
the total cost of PV, which contains the
levelised cost of PV (LCOE) and the
system cost of PV.
PV cost = LCOE of PV +/- System cost
- Capital costs - Capacity costs
- O&M costs (security)
- Network costs
- Balancing costs
- Losses
Figure 2 Total cost of PV
LCOE considers the capital cost and
O&M cost of PV and the system cost of
PV includes the system capacity costs
associated with capacity needed for
security, network costs, balancing costs
and cost of losses. Both account the total
cost of PV.
2.2 Scope
The following costs will be quantified or
estimated:
 Capacity value and capacity cost of
PV: PV effect on conventional power
generation. This will require that
conventional generation capacity is
retained to maintain system security
while operating at reduced load
factors, which is a source of system
integration cost that is attributed to the
PV generation. The extent to which
various mitigation options, such as
demand response or storage could
firm the capacity value of PV will be
defined.
 Operating reserve cost of PV: effect
on short term demand-supply
balancing issues in system with
significant penetration of PV
generation. Cost of providing these
services need to be quantified to
enable accurate grid parity
assessment of PV generation. The
benefit of alternative mitigation
options, including sharing operating
reserves via interconnectors,
responsive demand and storage will
be evaluated in the context of EU
electricity system.
 Costs and benefits of PV on the
capacity of European main
transmission corridors and losses:
the impact of PV on transmission
network capacity and losses will be
estimated. This could also lead to
reduced network losses, which could
bring networks benefits. This point will
be estimated.
6
 Costs and benefits of PV on
distribution network capacity and
losses. Estimate the impact of
significant penetration of PV on
distribution network.
The impacts of PV on the grid are going
to be evaluated in a limited set of target
countries such as France, Germany, Italy,
Spain and the UK.
In the next section, we describe the
scenarios and data required for
conducting the study as well as
parameters that affect the system cost of
PV.
7
33 Capacity
CapacityValue
Valueand
andAdditional
AdditionalCapacity
CapacityCost
CostofofPV
PV

3.1 Approach

Although output from PV may displace more dominant, the same trend we see
a significant amount of energy nowadays. Therefore, it is reasonable to
produced by large conventional plant, assume that new PV will displace new
the ability of this technology to gas fired plant as the primary technology.
displace capacity of conventional The displaced energy of primary
plant, due to its intermittent nature, technology is equal to the expected
will be limited. Therefore, it is output production from PV. Considering
necessary to retain a proportion of PV is a zero marginal cost plant, its
conventional plant for security
output can displace the output of gas fired
purposes. This is seen as a source of plant.
additional costs for PV and therefore,
the magnitude of the costs, cost (1)
drivers as well as its mitigation With LFPV is the load factor of PV and
options needs to be understood. LFgas is the load factor of gas fired plant.

In order to calculate the magnitude of the To quantify the capacity of gas fired plant
additional capacity costs driven by PV that may be possible to be displaced by
technology, we use the following formula: PV, we will use a generation adequacy
assessment model. The model calculates
Percentage displaced
capacity of primary
technology due to
system reliability indices given a
penetration of secondary
technology
predefined generation and demand
𝐶
𝐷𝑃𝑟
background. A security criterion, that
𝐼
∆ 𝐶𝑠𝑒𝑐 = 1 − 𝐸 . 𝐶𝑃𝑟0 Loss of Load Expectation (LOLE) must be
𝐷𝑃𝑟
Additional capacity
less or equal than 4 hours/year is used in
Per-unit capacity cost
cost of secondary
technology Percentage displaced
of primary technology our study. LOLE indicates the number of
energy of primary
technology due to
hours in a year where demand exceeds
penetration of secondary
technology
the available generating capacity in the
system, which leads into load curtailment.

Figure 3 Additional capacity cost of PV

The model can incorporate all types of
generation technologies such as hydro
PV is assumed as the secondary power, wind, PV, nuclear, and gas fired
technology that displaces energy and plants. All technologies are modelled
capacity of the primary (or incumbent) according to their individual technical
technology. Since PV displaces marginal characteristics.
generators such as coal or gas or oil fired
The approach can be summarized as
plant, the primary generator can be
follows. Firstly, we determine the capacity
selected from those conventional
of gas fired plant in a system without PV.
generation technology. In the future, it is
Secondly, PV is added to the system and
likely new investment in coal or oil fired
the capacity of gas fired plant is reduced
plant (without CCS) will be limited and
until the reliability level is equal to the
investment in new gas fired plant will be
8
previous level. We can therefore calculate
the capacity of gas fired plant that can be
displaced by PV.
3.2 Input data
Although the formulation in Figure 3 is
simple, the actual calculation is relatively
complex and requires a large amount of
data, as listed below:
- Hourly load and PV output profiles
for one year period. The adequacy
of installed generation capacity is
driven by the shape of load
profiles, the magnitude of peak
demand, and the temporal
availability of PV. One year hourly
data associated with year 2020
and 2030 should be adequate for
this analysis.
cost of PV for various penetration level of
PV.
3.4 Illustration
Figure 4 shows the additional capacity
cost of PV in the UK. The cost is flat at
circa €14/MWh of energy demand
assuming the capex of a gas fired plant at
€660/kW. Considering that the peak
demand in the UK occurs in winter
evenings and by that time output of PV is
zero, as shown in Figure 5, the capacity
value of PV in this case is zero. Thus
there is no capacity of gas fired plant that
can be displaced by PV. Therefore the
additional capacity cost of PV will be
equal to the capex cost of adding CCGT.
35% 16.00

Additional system capacity cost (€/MWh)

14.00
Capacity credity [% of solar capacity]

30%
- Storage and generation data 12.00
25%
including other renewable output 10.00
20%
profiles e.g. hydro, wind and the 8.00
15%

capital cost of gas fired plant. 10%

6.00

4.00

5%
2.00
0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
0% -

3.3 Parameters .7%

[3.6GW]
1.5%
[7.3GW]
2.2%
[10.9GW]
2.9%
[14.6GW]
3.7%
[18.2GW]
4.4%
[21.9GW]
5.1%
[25.5GW]
5.8%
[29.2GW]

Penetration level of solar [% of energy demand]

The important parameters that affect the

Figure 4 Additional capacity cost of PV in the UK
additional capacity cost of PV are:
- Penetration level of PV. The
capacity value of intermittent
generation generally is lower when
its penetration level increases. At
some point, the ability of a new
intermittent generator to displace
conventional capacity will saturate
and diminish.
- The cost of primary technology, in
this case, the capex of gas fired Peak demand period
plant.
Figure 5 Samples of hourly demand and PV’s
While the additional capacity cost is linear output profiles for different seasons in the UK
against the changes in the latter, it is non However, for Southern European countries,
linear to the changes in PV penetration that have better PV’s load factors and have
level. Sensitivity studies will be carried peak demands during summer day, the cost
out to investigate the additional capacity
9
reduces to zero (even to a small negative
value) but increases in line with increased in
PV penetration as shown in Figure 6. It is an
on-going study, full analysis and other results
of our studies are expected to be available
sometimes next year.

35% 12.00

Additional system capacity cost (€/MWh)

29.71%
Capacity credity [% of solar capacity]

30% 10.00

25% 8.00
22.28%

20% 6.00

14.86%
15% 4.00
11.14%
10% 8.91% 2.00
7.43%
6.37%
5.57%
5% -

0% -2.00
1.2% 2.5% 3.7% 4.9% 6.1% 7.4% 8.6% 9.8%
[3.4GW] [6.7GW] [10.1GW] [13.5GW] [16.8GW] [20.2GW] [23.6GW] [26.9GW]

Penetration level of solar [% of energy demand]

Figure 6 Additional capacity cost of PV in Italy

10
44 Transmission
Transmissionand
andBalancing
BalancingCost
CostofofPV
PV
4.1 Approach
Solar resources are different across
Europe. Southern part of Europe has
better resources and it is expected to
have significant growth in PV
generation in the coming years.
However, at certain level, an increase
in new PV capacity will increase the
demand for new transmission capacity
(and also distribution – see next
Chapter) as well as balancing cost.
Transmission network will facilitate
more cost effective integration of PV in
Europe.
In order to evaluate the impact of PV
technology on the capacity of main
European grid, we will use Imperial
College Dynamic System Investment
Model (DSIM) to calculate the
incremental network capacity needed to
facilitate increase in the installed capacity
of PV across Europe.
Figure 7 European grid model
The model optimizes generation and
transmission investment decisions in GB
as well as the short-term operation of the
entire European system (Figure 7) on an
hourly basis, including plant dispatch and
scheduling of reserve and frequency
regulation services to ensure sub-hour
(seconds to minutes) balancing of the
system. The model takes account of
system adequacy and security
requirements.
DSIM provides information on the amount
of transmission capacity needed in the
system to maximize the overall benefits.
This enables quantification on the
increased network capacity caused by
incremental changes in PV installed
capacity.
On the other hand, DSIM also estimates
the system operating cost, mainly driven
by generation costs (fuel, no-load, and
start-up cost). This operating cost
includes the CO2 prices and also the
11
effect of running a generator part-loaded
to provide operating reserves. As PV
installed capacity increases, the operating
reserves also increase to hedge the risk
of uncertainty caused by unit
unavailability or changes in PV energy
sources, amongst others. By comparing
the operating costs of two different
scenarios, - with and without increase in
operating reserves, we can derive the
changes in system balancing cost due to
increased PV capacity.
Figure 8 PV power output from 2.2 kWp PV panel in
London
Figure 8 is an illustrative example on how
the PV power output varies across time.
The aggregated variation from a large
number of PV dispersed geographically
will be much less; nevertheless it
indicates that increased PV will require
additional operating reserves.
4.2 Scenarios
As the impacts of PV on European
transmission depend on the reference
case selected, two key target years will
be used as reference cases, i.e. 2020
and 2030 scenarios based on the
European Climate Foundation analysis.
Installed capacity of PV will be increased
incrementally and the changes on
transmission investment proposed by
DSIM are used to evaluate the network
cost associated with increased PV.
In addition to uniform distribution of
incremental changes in PV capacity, we
will also evaluate the impact of
incremental changes in selected target
countries such as Italy, France, Germany,
Spain, and the UK and also the impact of
PV development in selected MENA
countries.
Another study will also be carried out to
investigate the value of cross border
renewable trading facilitated by the
flexibility mechanisms set out in the 2009
Renewable Energy Directive
(2009/28/EC). For example, to calculate
the system savings if PV in Italy/Spain
displaces PV in the UK or other Northern
European countries where PV load
factors may be significantly lower than PV
LFs in Southern Europe.
At the same time, the impacts of PV on
network losses will be estimated from our
studies.
In order to evaluate the impacts of PV on
the balancing requirements, two cases
will be simulated; (i) assuming that the
incremental changes in PV does not
affect the operating reserves , and (ii) the
increased in PV increases the operating
reserves.
The impact of increased operating
reserves will also depend on how
reserves are procured and provided
across the system. Interconnectors allow
sharing of reserves and if this sharing
reserves policy is adopted, it may reduce
the system cost of PV. This will be
investigated in our study.
12
4.3 Input Data

In addition to the data requirement

specified in 3.2. , DSIM requires the
following:

- network data including the

European grid model and network
cost data;
- generation operating cost data
including fuel cost, no-load and
start-up cost, dynamic parameters
including response characteristics.

13
55 Distribution
DistributionNetwork
NetworkCost
Costof
ofPV
PV
5.1 Approach
Among system integration costs, the
impact of PV on distribution networks
may be very significant and this
aspect is of critical importance for
distribution network operators. PV
may bring benefits or increase
distribution network costs. The
benefits are expected when network
design is driven by summer peak
demand and hence PV generation may
offset the load increases driven
particularly by Air Conditioning load.
On the other hand, in systems in
which network design is driven by
winter peak demand condition, PV
generation may create voltage
problems during low demand and high
PV outputs (during low demand
summer days). Furthermore, PV may
reduce or increase distribution
network losses. In some systems,
unbalanced distribution of PV across
phases may also increase the case for
network reinforcement and therefore
increase the cost of PV integration.
These impacts need to be understood
and consider when determines the
grid parity of PV.
In order to calculate the impact of PV, we
will use Imperial’s distribution network
planning tool to create a set of
representative distribution network
models that resemble LV and HV
distribution system in Europe. As the
impacts of PV depend, among others, on
the topology and characteristics of the
networks, it is important to model few
distribution networks with different
characteristics, e.g. urban, semi urban,
semi rural, and rural networks. Figure 9
illustrates 2 distribution network models
that resemble urban and rural models.
The models as output from the Imperial’s
distribution network planning tool have
been validated using actual network data
from distribution network operators.
As the tool optimizes the design and the
capacity of distribution networks, we can
use to quantify the impacts of PV on the
network by quantifying the increase in
network cost due to increase in the PV
penetration. Depending on the
penetration level of PV, amongst other
factors, the impacts can be positive
(benefits) or negative (costs) to the
system. For example, PV may release
spare capacity of the network allowing
load growth without necessarily incurring
network investment and reduce losses.
On the other hand, PV may increase
network cost due to demand in capacity
or due to voltage rise effect. PV may also
increase losses.
• Rural system:
• Urban system:
– 0.2MVA/km2
–
–
5MVA/km2
20 Sub/km2 – 8 Sub/km2
– Size of Sub: 200kVA-630kVA – Size of Sub: 50kVA–200kVA
– Total capacity (all subs) 6.5 MVA – Total capacity (all subs): 3.3 MVA
0.95 km 2.6 km
Figure 9 Illustrative example of reference network
for urban (left diagram) and rural (right diagram)
Power flow analysis will be carried out
considering importance operating
snapshots that drive network capacity; for
example, maximum demand with
minimum (zero) PV and minimum
14
demand with maximum PV. These will be
derived from data in 3.2.

In order to minimize the negative impacts

of PV on distribution networks, we will
also investigate a range of mitigation
options such as the use of storage and
demand side. Impact of unbalanced PV
installation will also be investigated.

5.2 Parameters and data

requirements

In order to create the representative

network models, the following data are
required: load density (MVA/km2), area
(km2), number of distribution
transformers, branching rate, and
distribution network circuit technical and
cost data. In addition, the power flow
analysis tool requires load and solar PV
output profiles that can be derived from
data specified in 3.2.

15
CONTACTS

PROJECT COORDINATOR
WIP – Renewable Energies
Ms Ingrid Weiss • ingrid.weiss@wip-munich.de • +49 89 7201 2741

or

Energy Futures Lab, Imperial College London

Dr Danny Pudjianto • d.pudjianto@imperial.ac.uk • +44 79 8944 3398

Disclaimer: The sole responsibility for the content of this publication lies with the authors. It
does not necessarily reflect the opinion of the European commission.

The European commission is not responsible for any use that may be made of the
information contained therein.