Why Renewable Power Can Be Expensive Under Grid-Connected Conditions

• Intermittency and Variability

Wind and solar are inherently weather-dependent and generate with high variability. Grid operators must ensure real-time supply-demand balance, which requires:

1. More sophisticated system dispatch and forecasting tools
2. Higher reserves and standby capacity to maintain reliability.

• Balancing and Backup Investments

To address daily and seasonal fluctuations, system planners must invest in:

1. Flexible gas turbines and peaker plants with fast ramping capability
2. Hydropower with storage or pumped hydro for load shifting
3. Battery energy storage systems (BESS) for short-term balancing
4. These assets add substantial CapEx and OpEx to the overall power system.

• Transmission and Grid Infrastructure Costs

Wind and solar resources are typically concentrated in remote areas with high resource quality (e.g., deserts, offshore regions). Delivering power to demand centers requires:

1. Long-distance high-voltage transmission lines (HVAC/HVDC)
2. Grid reinforcement and flexible AC transmission systems (FACTS)
3. Smart grid technologies to accommodate bi-directional and variable flows
4. These investments represent a significant portion of renewable integration costs.

• Policy and System Integration Costs

Even where renewable energy is abundant, the grid may not be able to absorb all output. Challenges include:

1. Curtailment during periods of oversupply
2. Regulatory limits on grid hosting capacity
3. Additional system reliability requirements for high renewable penetration

As a result, the total cost of renewable integration is often higher than the LCOE of generation itself.

Why Renewable Power Can Be Expensive Under Off-Grid / Power-to-X Conditions

For projects designed to consume renewable power directly (e.g., hydrogen, ammonia, methanol production), additional cost drivers emerge.

• Conversion and Storage Costs

Renewable power must be converted via electrolysis or other processes into chemical energy carriers.

Downstream conversion to green ammonia, methanol, or synthetic fuels requires additional synthesis equipment and operating expenditure.

Each conversion step incurs efficiency losses, raising the cost per unit of usable energy.

• Distributed Utilization and System Design Costs

Off-grid projects must develop their own on-site storage, processing, and auxiliary facilities.

Without the economies of scale provided by large interconnected grids, these systems face higher unit costs.

• Policy and Market Mechanisms

Economic viability depends heavily on policy incentives, subsidies, and offtake agreements.

Compared to wholesale electricity sales, Power-to-X projects face higher financial complexity and indirect returns.

• Flexibility and Reliability Costs

Isolated systems must independently balance supply and demand, often requiring redundancy and flexible dispatch resources.

This increases both capital investment and ongoing maintenance costs.

The Evolving Cost Landscape

Despite these challenges, recent studies indicate that renewable-dominated power systems are approaching cost parity with fossil-based systems when evaluated at the system level.

Key findings include:

1. Wind + solar + storage + transmission + ancillary services can now deliver reliable power at competitive total cost.
2. The decisive metric is no longer the LCOE of an individual generation source, but the cost of integrated system operation and flexibility.
3. Long-term competitiveness will be shaped by advances in storage technologies, digital grid management, and sector coupling through Power-to-X pathways.