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The merit-order effect: A detailed analysis of the price effect of renewable electricity generation on spot market prices in Germany

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  • Sensfuß, Frank
  • Ragwitz, Mario
  • Genoese, Massimo
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    Abstract

    The German feed-in support of electricity generation from renewable energy sources has led to high growth rates of the supported technologies. Critics state that the costs for consumers are too high. An important aspect to be considered in the discussion is the price effect created by renewable electricity generation. This paper seeks to analyse the impact of privileged renewable electricity generation on the electricity market in Germany. The central aspect to be analysed is the impact of renewable electricity generation on spot market prices. The results generated by an agent-based simulation platform indicate that the financial volume of the price reduction is considerable. In the short run, this gives rise to a distributional effect which creates savings for the demand side by reducing generator profits. In the case of the year 2006, the volume of the merit-order effect exceeds the volume of the net support payments for renewable electricity generation which have to be paid by consumers.

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    File URL: http://www.sciencedirect.com/science/article/B6V2W-4SP4B3D-1/1/179bdad0f885fb5d9f5e3a1d3d4c3c79
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    Bibliographic Info

    Article provided by Elsevier in its journal Energy Policy.

    Volume (Year): 36 (2008)
    Issue (Month): 8 (August)
    Pages: 3076-3084

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    Handle: RePEc:eee:enepol:v:36:y:2008:i:8:p:3076-3084

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    Web page: http://www.elsevier.com/locate/enpol

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    References

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    1. Rathmann, M., 2007. "Do support systems for RES-E reduce EU-ETS-driven electricity prices?," Energy Policy, Elsevier, vol. 35(1), pages 342-349, January.
    2. Wissen, Ralf & Nicolosi, Marco, 2007. "Anmerkungen zur aktuellen Diskussion zum Merit-Order Effekt der erneuerbaren Energien," EWI Working Papers 2007-3, Energiewirtschaftliches Institut an der Universitaet zu Koeln.
    3. Bode, Sven, 2006. "On the impact of renewable energy support schemes on power prices," HWWI Research Papers 4-7, Hamburg Institute of International Economics (HWWI).
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    Cited by:
    1. Richard Green & Nicholas Vasilakos, 2008. "Market Behaviour with Large Amounts of Intermittent Generation," Discussion Papers 08-08, Department of Economics, University of Birmingham.
    2. Nicolosi, S., 2010. "Wind power integration, negative prices and power system flexibility - An empirical analysis of extreme events in Germany," MPRA Paper 31834, University Library of Munich, Germany.
    3. Schaber, Katrin & Steinke, Florian & Hamacher, Thomas, 2012. "Transmission grid extensions for the integration of variable renewable energies in Europe: Who benefits where?," Energy Policy, Elsevier, vol. 43(C), pages 123-135.
    4. Lion Hirth & Falko Ueckerdt, 2012. "Redistribution Effects of Energy and Climate Policy: The Electricity Market," Working Papers 2012.82, Fondazione Eni Enrico Mattei.
    5. Dallinger, David & Schubert, Gerda & Wietschel, Martin, 2012. "Integration of intermittent renewable power supply using grid-connected vehicles: A 2030 case study for California and Germany," Working Papers "Sustainability and Innovation" S4/2012, Fraunhofer Institute for Systems and Innovation Research (ISI).
    6. Nicolosi, Marco, 2010. "Wind power integration and power system flexibility-An empirical analysis of extreme events in Germany under the new negative price regime," Energy Policy, Elsevier, vol. 38(11), pages 7257-7268, November.
    7. Woo, C.K. & Horowitz, I. & Moore, J. & Pacheco, A., 2011. "The impact of wind generation on the electricity spot-market price level and variance: The Texas experience," Energy Policy, Elsevier, vol. 39(7), pages 3939-3944, July.
    8. Moreno, Fermín & Martínez-Val, José M., 2011. "Collateral effects of renewable energies deployment in Spain: Impact on thermal power plants performance and management," Energy Policy, Elsevier, vol. 39(10), pages 6561-6574, October.
    9. Dirk Rübbelke & Stefan Vögele, 2012. "Effects of Carbon Dioxide Capture and Storage in Germany on European Electricity Exchange and Welfare," Working Papers 2012-05, BC3.
    10. Korbinian von Blanckenburg & Marc Hanfeld & Konstantin A. Kholodilin, 2013. "A Market Screening Model for Price Inconstancies: Empirical Evidence from German Electricity Markets," Discussion Papers of DIW Berlin 1274, DIW Berlin, German Institute for Economic Research.
    11. Möst, Dominik & Fichtner, Wolf, 2010. "Renewable energy sources in European energy supply and interactions with emission trading," Energy Policy, Elsevier, vol. 38(6), pages 2898-2910, June.
    12. Viehmann, Johannes, 2011. "Risk premiums in the German day-ahead Electricity Market," Energy Policy, Elsevier, vol. 39(1), pages 386-394, January.
    13. Green, Richard & Vasilakos, Nicholas, 2011. "The economics of offshore wind," Energy Policy, Elsevier, vol. 39(2), pages 496-502, February.
    14. Nicolosi, Marco, 2011. "The impact of RES-E policy setting on integration effects - A detailed analysis of capacity expansion and dispatch results," MPRA Paper 31835, University Library of Munich, Germany.
    15. Lynette Molyneaux & Craig Froome & Liam Wagner, 2012. "Where is Australian Power headed in 2035?," Energy Economics and Management Group Working Papers 10-2012, School of Economics, University of Queensland, Australia.
    16. Dallinger, David & Wietschel, Martin, 2011. "Grid integration of intermittent renewable energy sources using price-responsive plug-in electric vehicles," Working Papers "Sustainability and Innovation" S7/2011, Fraunhofer Institute for Systems and Innovation Research (ISI).
    17. Steggals, Will & Gross, Robert & Heptonstall, Philip, 2011. "Winds of change: How high wind penetrations will affect investment incentives in the GB electricity sector," Energy Policy, Elsevier, vol. 39(3), pages 1389-1396, March.
    18. Doherty, Ronan & O'Malley, Mark, 2011. "The efficiency of Ireland's Renewable Energy Feed-In Tariff (REFIT) for wind generation," Energy Policy, Elsevier, vol. 39(9), pages 4911-4919, September.
    19. Weber, Christoph, 2010. "Adequate intraday market design to enable the integration of wind energy into the European power systems," Energy Policy, Elsevier, vol. 38(7), pages 3155-3163, July.
    20. Rammerstorfer, Margarethe & Wagner, Christian, 2009. "Reforming minute reserve policy in Germany: A step towards efficient markets?," Energy Policy, Elsevier, vol. 37(9), pages 3513-3519, September.
    21. Alagappan, L. & Orans, R. & Woo, C.K., 2011. "What drives renewable energy development?," Energy Policy, Elsevier, vol. 39(9), pages 5099-5104, September.

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