Integration Costs

LCOE says solar is the cheapest electricity source. The grid operator's actual cost is higher, because LCOE does not include the cost of making solar work on a system designed for dispatchable power.

Integration costs are the additional system costs incurred when adding variable renewable generation to a grid, beyond the generation cost itself. They include backup and balancing costs (keeping gas plants running to cover wind and solar variability), grid reinforcement (new transmission to connect remote wind and solar sites), curtailment (energy wasted when supply exceeds demand), and profile costs (the declining market value of energy produced at times when all solar or wind generates simultaneously).

At low penetration (under 10%), integration costs are small: $2-5/MWh. At high penetration (30-50%), they can reach $15-30/MWh, narrowing or erasing solar and wind's LCOE advantage over dispatchable alternatives.

LCOE versus system cost. Solar LCOE in Texas is roughly $25/MWh. But ERCOT spent an additional $8-12/MWh on ancillary services, curtailment, and grid upgrades attributable to solar and wind integration in 2023.

Does adding integration costs to LCOE make solar more expensive than gas?

Not yet, but the gap narrows. Solar at $25 + $10 integration = $35/MWh. New gas CCGT at $45-55/MWh. Solar still wins at current penetration. But integration costs rise nonlinearly with penetration. At 60%+ renewable share, the system costs can exceed the generation savings, which is why storage, demand flexibility, and transmission expansion are not optional add-ons but prerequisites for maintaining the economic case.

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