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Merit order

Junk

References

  • Appunn (2015), CLEW factsheet on the merit order effect[3]
  • Appunn (2016) on re-dispatch costs[4]

The merit order in the British electricity market

The merit order was the method used in the

privatisation of the sector this was replaced by a more complex[citation needed
] bidding system, the electricity pool, in 1990.

Main article
For other uses, see Order of Merit (disambiguation).

The merit order is a way of ranking available sources of energy, especially electrical generation, based on ascending order of price (which may reflect the order of their short-run marginal costs of production) together with amount of energy that will be generated. In a centralized management, the ranking is so that those with the lowest marginal costs are the first ones to be brought online to meet demand, and the plants with the highest marginal costs are the last to be brought on line. Dispatching generation in this way minimizes the cost of production of electricity. Sometimes generating units must be started out of merit order, due to transmission congestion, system reliability or other reasons.

The effect of renewable energy on merit order

The high demand for electricity during

baseload power supply mix is supplemented by ‘peaking power plants
,' which charge a premium for their electricity.

Increasing the supply of renewable energy tends to lower the average price per unit of electricity because

Fraunhofer Institute found that this "merit order effect" had allowed solar power to reduce the price of electricity on the German energy exchange by 10% on average, and by as much as 40% in the early afternoon, in 2007; as more solar electricity is fed into the grid, peak prices will come down even further.[6] By 2006, the "merit order effect" meant that the savings in electricity costs to German consumers more than offset for the support payments paid for renewable electricity generation.[6]

A 2013 study estimates the merit order effect of both wind and photovoltaic electricity generation in Germany between the years 2008 and 2012. For each additional GWh of renewables fed into the grid, the price of electricity in the day-ahead market is reduced by 0.11–0.13 ¢/kWh. The total merit order effect of wind and photovoltaics ranges from 0.5 ¢/kWh in 2010 to more than 1.1 ¢/kWh in 2012.[7]

The zero marginal cost of wind energy does not, however, translate, into zero marginal cost of peak load electricity in a competitive open electricity market system as wind supply cannot be dispatched to meet peak demand. The purpose of the merit order was to enable the lowest net cost electricity to be dispatched first thus minimising overall electricity system costs to consumers. Intermittent wind might be able to supply this economic function provided peak wind supply and peak demand coincide both in time and quantity. On the other hand, solar energy tends to be most abundant during peak energy demand, maximizing its ability to displace coal and natural gas power.

A study by the

Fraunhofer Institute in Karlsruhe, Germany found that windpower saves German consumers €5 billion a year. It is estimated to have lowered prices in European countries with high wind generation by between 3 and 23 €/MWh.[8][9] On the other hand, renewable energy in Germany increased the price for electricity, consumers there now pay 52.8 €/MWh more only for renewable energy (see German Renewable Energy Sources Act
), average price for electricity in Germany now is increased to 26 ¢/kWh.

See also

References

  1. ^ Sensfuß, Frank; Ragwitz, Mario; Massimo, Genoese (2007). The Merit-order effect: a detailed analysis of the price effect of renewable electricity generation on spot market prices in Germany — Working Paper Sustainability and Innovation No. S 7/2007 (PDF). Karlsruhe, Germany: Fraunhofer Institute for Systems and Innovation Research (Fraunhofer ISI). Retrieved 2016-07-27.
  2. ^ Sensfuß, Frank; Ragwitz, Mario; Massimo, Genoese (August 2008). "The merit-order effect: a detailed analysis of the price effect of renewable electricity generation on spot market prices in Germany". Energy Policy. 36 (8): 3076–3084.
    doi:10.1016/j.enpol.2008.03.035
    .
  3. ^ Appunn, Kerstine (23 January 2015). "Setting the power price: the merit order effect". Clean Energy Wire (CLEW). Berlin, Germany. Retrieved 2016-08-10.
  4. ^ Appunn, Kerstine (16 February 2016). "Re-dispatch costs in the German power grid". Berlin, Germany: Clean Energy Wire (CLEW). Retrieved 2016-08-12.
  5. ISBN 9789264030145. Retrieved 24 December 2012.{{cite book}}: CS1 maint: multiple names: authors list (link
    )
  6. ^ a b c Frank Sensfuß; Mario Ragwitz; Massimo Genoese (2007). The Merit-order effect: A detailed analysis of the price effect of renewable electricity generation on spot market prices in Germany. Working Paper Sustainability and Innovation No. S 7/2007 (PDF). Karlsruhe: Fraunhofer Institute for Systems and Innovation Research (Fraunhofer ISI).
  7. ^ Cludius, Johanna; Hermann, Hauke; Matthes, Felix Chr. (May 2013). The merit order effect of wind and photovoltaic electricity generation in Germany 2008–2012 — CEEM Working Paper 3-2013 (PDF). Sydney, Australia: Centre for Energy and Environmental Markets (CEEM), The University of New South Wales (UNSW). Retrieved 2016-07-27.
  8. doi:10.1111/j.1475-5890.1992.tb00501.x
    .
  9. doi:10.1016/j.enpol.2008.03.035
    .

Category:Energy economics

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