Key findings

• Integrating renewable generators (wind and solar) into our electricity grids can greatly benefit society by reducing carbon emissions, air pollutants, and the cost of burning fossil fuels.
• Integrating renewables can also cost a lot of money and resources because they make our grids less stable, increasing the risk of blackouts and slowing the rollout of renewables. 
• I find that the true cost to maintain this stability is significantly lower than we previously thought.

Renewable electricity generators, powered by wind and sun, provide many benefits by generating power for our electricity grid. When the wind is blowing and the sun is shining, we do not need to burn as much coal or gas to produce power as we otherwise would. But integrating renewables creates costs, from the need to build transmission infrastructure to the need to run heavier-polluting generators more, which must be managed¹.

I study the additional cost of integrating renewables - that of keeping the grid stable under a high level of renewables. Renewables are connected to the grid via power system electronics—just like the solar panels you might have in your own house. Traditional fossil-fueled generators are connected via a large, rotating turbine. While a rotating turbine helps keep the grid stable, renewables make the grid more susceptible to rolling blackouts when the grid is stressed. 

This increasing lack of stability seems to be the cause of the major blackout on the Iberian Peninsula in 2025². Being aware of these costs and the best ways to avoid them is crucial to implementing a policy that integrates renewables into our grid cost-effectively.

I focus on these costs of providing stability in South Australia, a region of Australia’s National Electricity Market that leads the world in integrating renewables into its electricity grid. Learning about the costs of stability in this setting will help us develop policy in places like California and the United Kingdom before the problem gets too severe. South Australia is our canary in the coal mine.

In South Australia, when renewables generate a lot of electricity and the grid becomes unstable, the grid operator intervenes to prevent blackouts. These manual interventions by the grid operator are called directions.  When the grid operator makes a direction, it calls on gas-fired generators to come online and generate electricity because of the stability they provide to the grid. This procedure is stressful for the grid operators, comparable to an air traffic controller directing planes to avoid a crash. As we invest in more renewables, the grid operator is forced to intervene more often. In 2021, the grid operator manually directed at least one generator up to 95% of the time, and all online generators up to 50% of the time (see Figure 1). This means we were burning more fossil fuels by running generators just to avoid a blackout.

This practice is obviously going to erode the benefits of having renewables connect to the grid. Turning on fossil-fuel-powered generators to provide stability will create emissions and air pollution and incur high fuel costs. Because of the data I have available, I focus on the cost of burning fuel from these directions to generate electricity. According to the grid operator, the cost of these directions to maintain grid stability is $80-96 million per year. This cost is high. Requiring this level of cost to provide stability during integration can undermine the economic case for integrating renewables onto the grid.

But this $80 million figure does not tell the whole story. The goal of an economist is to say what would have happened if we did not need these directions. The difference between the world and the observed reality is the true economic cost that we should base our policy on. Several things could have happened if we had not had these directions. 

First, the directed generator might have had to have cycled on and off, which burns additional fuel, so the directions might actually save money. Second, the directed generator might have been replaced by a more flexible, but costlier, generator during the peak period. Third, the directions might have been a bit overzealous, and the directed generator might have turned on anyway. If any of these hypotheticals occur, it brings down the true cost of maintaining stability.

The perceived cost of maintaining stability is an impediment to public and policy support for investing in more renewables. Understanding the true cost of providing stability is crucial to maintaining the pace of renewable investment.

The true cost of stability is less than we think

Grid operators use complex computer programs that work out which generators to generate electricity to supply the grid at the cheapest cost. I am able to simulate a slimmed-down version of these programs that the Australian grid operator uses and feed in data on what really happened in the grid. That is, how much renewables were online, how much generators cost to run, and what electricity demand was at each moment.

I simulate the electricity grid, eliminating the need for directions, allowing it to reorganize, and enabling other generators to supply electricity instead of the directed ones. Finding how much it costs to run the grid this way and subtracting that from the amount we observe the grid running at shows the true cost of these directions.

Between 2018 and 2024, the true cost of the directions is only $31.6 million per year, much less than the figure reported in the media. The disparity paints a substantially better picture for integrating renewables into the grid.

Where does this difference come from? My simulations find that the directions do cause fossil-fueled generators to run more than they otherwise would. However, this increase in costs is offset by keeping on relatively cheap and efficient generators all day, kicking out costlier generators during the evening, and saving fuel from not having to turn off and back on again.

The true cost of stability of $31.6 million per year is still an economically significant amount of money. Nevertheless, this amount is substantially lower than the amount reported by the grid operator, and so paints a brighter picture for the feasibility of integrating renewables into our grids.

Policy Implications

In economics, all things, no matter how good, have costs. When governments, businesses, and policymakers manage costs and benefits, society benefits by redirecting excess resources. This, too, is the lesson here. Renewables have obvious benefits for society, but a rational policymaker should be concerned about the costs of integrating them into the grid. A cost of stability of $80 million per year is substantial enough to slow down the investment in renewables. However, I find that this cost grossly overstates the true economic cost, the number that should really enter the policymaker’s calculus. I find that the cost of stability is 90% lower than this reported figure. 

While studying a region in Australia, I have found lessons for policymakers worldwide. Many grid operators are working out how to invest in their networks to integrate renewables. The United Kingdom and Denmark are looking to spend enormous sums to secure their stability through investments in their networks, rather than relying on existing generators. These investments divert resources (money, time, and equipment) away from uses that could otherwise be made, such as renewable capacity. 

My research shows that directing fossil-fueled generators to provide stability is substantially cheaper than we think and can be done today without building new infrastructure. Grid operators should take this lesson and evaluate whether using existing generators to provide stability can accelerate the integration of renewables.

Stuart Morrison is a PhD candidate at UC Davis in the Department of Agricultural and Resource Economics. He was a 2024 Earth Scholar with the UC Davis Institute of the Environment. Before his graduate studies, he was a Senior Advisor at the Australian Energy Market Commission.

¹ James Bushnell and Kevin Novan, “Setting with the Sun: The Impacts of Renewable Energy on Conventional Generation,” Journal of the Association of Environmental and Resource Economists 8 no. 4 (2021): 759–96.

² Raúl Bajo Buenestado, “The Iberian Peninsula Blackout — Causes, Consequences, and Challenges Ahead”, Rice University’s Baker Institute for Public Policy, May 2, 2025. https://www.bakerinstitute.org/research/iberian-peninsula-blackout-causes-consequences-and-challenges-ahead.