Learning is not enough: Diminishing marginal revenues and increasing abatement costs of wind and solar

Abstract The economics of wind and solar generation face two opposing drivers. Technological progress leads to lower costs and both wind and solar have shown dramatic price reductions in recent decades. At the same time, adding wind and solar lowers market electricity prices and thus revenue during periods when they produce energy. In this work, we analyze these two opposing effects of renewable integration: learning and diminishing marginal revenue, investigated using a model that assumes the status quo with regards to generation technology mix and demand. Our modeling results suggest that reduction in revenue from market forces may offset or even outpace technological progress. If deployed on current grids without changes to demand response, storage or other integrating technologies, the cost of mitigating CO2 with wind will increase and with solar will be no cheaper in the future than it is today. This study highlights the need to deploy grid technologies such as storage and new transmission in order to integrate wind and solar in an economically sustainable manner.