Wind and solar photovoltaics (PV) are currently the fastest-growing sources of electricity globally. A "next generation" phase of deployment is emerging, in which wind and solar PV are technologically mature and economically affordable.

The success of variable renewable energy (VRE) is also bringing new challenges to the fore. Electricity generation from both technologies is constrained by the varying availability of wind and sunshine. This can make it difficult to maintain the necessary balance between electricity supply and consumption at all times.

As these variable renewables enter this next generation of deployment, the issue of system and market integration becomes a critical priority for renewables policy and energy policy more broadly. The paper highlights that this will require strategic action in three areas:

System-friendly deployment, aiming to maximise the net benefit of wind and solar power for the entire system

Improved operating strategies, such as advanced renewable energy forecasting and enhanced scheduling of power plants

Investment in additional flexible resources, comprising demand-side resources, electricity storage, grid infrastructure and flexible generation

In addition, the paper argues that unlocking the contribution of system-friendly deployment calls for a paradigm shift in the economic assessment of wind and solar power. The traditional focus on the levelised cost of electricity (LCOE) – a measure of cost for a particular generating technology at the level of a power plant – is no longer sufficient. Next-generation approaches need to factor in the system value of electricity from wind and solar power – the overall benefit arising from the addition of a wind or solar power generation source to the power system. System value is determined by the interplay of positives and negatives including reduced fuel costs, reduced carbon dioxide and other pollutant emissions costs, or higher costs of additional grid infrastructure.

In addition to general analysis and recommendations, the paper also includes summaries of three case studies in China, Denmark and South Africa.