The levelized cost of energy is a useful measure, but it has several limitations. First of all, it is blind to the when, where, and how over power generation. What does it mean? The when? It doesn't take into account the temporal profile of the power generation, is it continuous or is it intermittent? It is blind to the where. Is the energy produced close to where it is needed, or a very long way away? The how refers to the technical characteristics of the equipment used. Levelized cost of energy calculations only consider input costs and implicitly assumes that the energy generated as the same value irrespective of whether it is continuous or intermittent, close or near, or how it is generated. A second and as important weakness of the levelized cost of energy is that for a given energy technology, I come up with a number, but the number is looked at in isolation. The technology is looked at by itself, whilst the message that I will be trying to convey in the rest of this session is it is absolutely indispensable to look at the interplay between the intermittent, dispatchable, and firm sources of energy. Let's try to look at this in more detail. As we've seen, the levelized cost of energy neglect the inability of renewables to meet demand at all times. Therefore, energy from renewables requires added flexibility from the rest of the system. Levelized cost of energy flatters the desirability of renewables because it doesn't take these component into account. As the energy contribution from renewables is concentrated in times, the economic value of the energy that they produce decreases as the share in electricity generation they produce increases. Let's simplify a lot just to get the gist of the arguments right. Let's think of two alternatives. One is, we focus completely on intermittent renewables, such as wind and solar supported by energy storage and demand flexibility. Or second possibility, we combine firm low carbon resources, such as nuclear or a coal plant with carbon sequestration and storage, together with renewables. How does this interplay play out and what are the consequences of this interplay? There has been a very interesting recent paper by Sepulveda and others, and in this paper, the authors present a comprehensive analysis of two pathways; one that relies only on renewables, and one that also includes low-carbon options, such as nuclear, bio and energy or neutral gas with carbon sequestration and storage. These are the key conclusions. In broad terms, the conclusions are that in all cases, the least cost strategy to decarbonize electricity includes one or more low-carbon resources. Without these resources, electricity cost rise rapidly as CO_2 emission limits become more stringent. The more we want to limit the emission of CO_2, the more it becomes costly to meet these demanding limits purely with renewables. Dispatchable, do not eliminate the need for firm resources. Since this is very important, it pays to look a bit more in detail at the problem. Electricity generation is being looked at typically from the demand perspective. If you look at electricity production from the demand perspective, it is natural to classify plants in three categories: base load plants, load-following plants, and peaking plants. A base load plant is a plant that supplies continuous energy with a minimum amount of energy produced, which is stipulated. I undertake always to produce a minimum of this energy. A load-following plant, is a plant that adjusts its power in order to meet daily and longer-term fluctuations in demand. Finally, a peaking plant, is a plant that only operates to meet peak demand. This is a traditional classification which is made based on a demand perspective. However, if I have the power system that relies substantially on wind and solar energy, there is an added source of variability. All the variability coming from demand remains, but there is also the variability of a supply of renewables. When renewables play an important role in the supply of energy, there is a more meaningful classifications. One is fuel saving variable renewable energy, wind and solar, which is virtually zero marginal cost, no fuel cost. Fast-burn balancing resources, energy storage, such as batteries. They have very high variable costs and firm low carbon resources such as nuclear, hydro with reservoirs, biomass, coal with carbon sequestration and storage, etc. The cost/benefit analysis for a firm plant changes dramatically if it is expected to operate at 95 percent or 30 percent. I have prepared here some stylized examples. These are not realistic, these are purely stylized example, in which I have started from a case of a medium penetration of intermittent renewables. What do I have on this graph? I have randomly chosen periodicities of solar and wind that occur at different times. Therefore, I have a total from solar and wind, which is in the gray line, and my baseload demand is the yellow line. Given this medium penetration, it means that the need of energy from a firm supplier is on average 38 percent, and it takes this time profile here. Now, let's look at the case of high penetration of intermittent renewables. As you can see now, the scale has changed, I have still wind and solar, which is much higher now, but it's still intermittent. Respect to the average level of wind and solar, the yellow line is now lower, but it is not so low as to make the need from firm sources zero, which is still a sizable 30 percent. In the case of low penetration, I have a yellow line now, which is quite high, and in this case, I have an average utilization from firm of approximately 60 percent. So what is the message here? The message here is that I need a super scaling, I need to over scale renewables to a very large degree in order to meet even a relatively modest baseload, because I cannot count on the intermittent to provide energy all the time. Therefore, I must scale the system in such an over generous way to have it much too big in most of the cases in order to be able to meet concentrated demand in concentrated cases. So looking at the management of electricity demand with fluctuations that range from seconds to seasons, relying only on renewables is not just difficult, but extremely costly. If I add low-carbon resources, one can respond to variations in demand and renewable energy output and lower the cost of low-carbon power systems by reducing the need of overall generating and storage capacity, by sweating the existing assets. So when I have a power plant I make use of it in a efficient way, and by avoiding substantial idling of potential renewable energy when it is not needed, which would happen if the renewables have to be over scaled. Unfortunately, two forms of low-carbon energy production, or two initiatives which are little subsidized, and which are key in this picture here, are nuclear and carbon sequestration, as we've already discussed. Yet, under a variety of scenarios, non-carbon-adding power plants, again, as nuclear or as gas with carbon sequestration, coupled with limited fast-burst options, this is the dispatchable, but becomes very limited, provide by far the most cost efficient energy solution. Now here, there is a very interesting graph that I would like to discuss in some detail. In this graph we have two halves. It refers to the United States, but the considerations can be exported as it were to other countries and other geographies, and it looks at the North and the South of the United States. It's a very detailed study, but we are just looking at the overall picture here. We don't have to go into to find a detail. It is very interesting what I have in each graph. Let's just look at the left side of the graph, which refers to the Northern system, and it is broken into two parts. In the left part, I have the average cost of energy when I use renewables and firm sources of energy, as I said, nuclear, coal plants with carbon sequestration, etc. On the right part, I have the average cost of energy when I only rely on renewables. Why do I have so many segments? Well, the segments depend on my allowable emission, so 200, 100, 50, 10, 5, 1, and 0 refer to the emission limit. The more stringent the emission limits, the more costly it becomes to rely purely on renewables. If we look even at the most stringent limits, and we look at all the different dots and crosses and squares in whatever symbols have been used, on the left-hand part of the zero section for this graph, we see that the cost is between $70 and $140 per ton and it is between 300 and 150 to obtain the same emission reduction in the Northern part of a system with renewables only. What is the big message coming from looking carefully at this graph? The big message is when firm low carbon resources are excluded, are not allowed, are not part of a solution, there is a very rapid increase in system costs as the emission limit approaches zero. As the emission limit approaches zero, of course, there is still an increase even when firm resources of energy are allowed but the increase is much more muted. This is super important because as I never tire of saying, reducing emissions and reducing temperature, which is our final goal is a very expensive effort. Therefore, we must sure that we make use, that we undertake the most cost-effective strategies which are possible. To meet demands during periods of low wind and solar availability with renewables alone requires large amounts of renewable capacity over what is needed most of the time and it required energy storage to transfer supply from periods of high to periods of low output. The key quantitative conclusions, which are reached by the article I was mentioning before, is that without firm resources, without nuclear and coal with carbon sequestration and storage, the total required installation generation per capacity with renewables alone would have to be 5-8 times the peak system demand compared to 1.5-2.5 times when firm resources are available. Given the extremely high level of capital investment in intermittent renewables needed in order to make a difference, the reduction in required power capacity, which is afforded by low-carbon power plants is crucial. This all goes back to the key observation that exactly because reducing emission is so expensive, we have to go down the most efficient route. In this context, levelized cost of energy gives one tool to comparing different sources, but is a very blunt tool. What else can we do? Well, we can see that when we look in a later session at what integrated assessment models can offer.