IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v145y2025ics0140988325002634.html
   My bibliography  Save this article

The new merit order: The viability of energy-only electricity markets with only intermittent renewable energy sources and grid-scale storage

Author

Listed:
  • Antweiler, Werner
  • Muesgens, Felix

Abstract

What happens to the merit order of electricity markets when all electricity is supplied by intermittent renewable energy sources coupled with large-scale electricity storage? With near-zero marginal cost of production, will there still be a role for an energy-only electricity market? We answer these questions both analytically and empirically for electricity markets in Texas and Germany. What emerges in market equilibrium is the ‘new merit order’. Curtailment at zero prices is a necessary feature of the new merit order, complementing peak prices to cover fixed costs of storage. Storage cannot ‘solve’ curtailment, because curtailment provides essential zero-price periods. Our work demonstrates that as long as free entry and competition ensure effective price setting, an efficient new merit order emerges in electricity markets even when the grid is completely powered by intermittent sources with near-zero marginal costs. We find that energy-only markets remain viable and functional.

Suggested Citation

  • Antweiler, Werner & Muesgens, Felix, 2025. "The new merit order: The viability of energy-only electricity markets with only intermittent renewable energy sources and grid-scale storage," Energy Economics, Elsevier, vol. 145(C).
    • Handle: RePEc:eee:eneeco:v:145:y:2025:i:c:s0140988325002634
    DOI: 10.1016/j.eneco.2025.108439
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140988325002634
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.eneco.2025.108439?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Frate, Guido Francesco & Ferrari, Lorenzo & Desideri, Umberto, 2021. "Energy storage for grid-scale applications: Technology review and economic feasibility analysis," Renewable Energy, Elsevier, vol. 163(C), pages 1754-1772.
    2. Roques, Fabien & Finon, Dominique, 2017. "Adapting electricity markets to decarbonisation and security of supply objectives: Toward a hybrid regime?," Energy Policy, Elsevier, vol. 105(C), pages 584-596.
    3. Linn, Joshua & Shih, Jhih-Shyang, 2019. "Do lower electricity storage costs reduce greenhouse gas emissions?," Journal of Environmental Economics and Management, Elsevier, vol. 96(C), pages 130-158.
    4. Antweiler, Werner & Muesgens, Felix, 2021. "On the long-term merit order effect of renewable energies," Energy Economics, Elsevier, vol. 99(C).
    5. Csereklyei, Zsuzsanna, 2020. "Price and income elasticities of residential and industrial electricity demand in the European Union," Energy Policy, Elsevier, vol. 137(C).
    6. Anna Cretì & Fulvio Fontini, 2019. "Economics of Electricity. Markets, Competition and Rules," Post-Print hal-02304345, HAL.
    7. Helm, Carsten & Mier, Mathias, 2021. "Steering the energy transition in a world of intermittent electricity supply: Optimal subsidies and taxes for renewables and storage," Journal of Environmental Economics and Management, Elsevier, vol. 109(C).
    8. Yang, Yuting, 2022. "Electricity interconnection with intermittent renewables," Journal of Environmental Economics and Management, Elsevier, vol. 113(C).
    9. Sven Teske & Thomas Pregger & Sonja Simon & Tobias Naegler & Johannes Pagenkopf & Özcan Deniz & Bent van den Adel & Kate Dooley & Malte Meinshausen, 2021. "It Is Still Possible to Achieve the Paris Climate Agreement: Regional, Sectoral, and Land-Use Pathways," Energies, MDPI, vol. 14(8), pages 1-25, April.
    10. Gunnar Luderer & Silvia Madeddu & Leon Merfort & Falko Ueckerdt & Michaja Pehl & Robert Pietzcker & Marianna Rottoli & Felix Schreyer & Nico Bauer & Lavinia Baumstark & Christoph Bertram & Alois Dirna, 2022. "Author Correction: Impact of declining renewable energy costs on electrification in low-emission scenarios," Nature Energy, Nature, vol. 7(4), pages 380-381, April.
    11. Melissa R. Allen & Steven J. Fernandez & Joshua S. Fu & Mohammed M. Olama, 2016. "Impacts of climate change on sub-regional electricity demand and distribution in the southern United States," Nature Energy, Nature, vol. 1(8), pages 1-9, August.
    12. Bas J. van Ruijven & Enrica De Cian & Ian Sue Wing, 2019. "Amplification of future energy demand growth due to climate change," Nature Communications, Nature, vol. 10(1), pages 1-12, December.
    13. Zerrahn, Alexander & Schill, Wolf-Peter, 2017. "Long-run power storage requirements for high shares of renewables: review and a new model," Renewable and Sustainable Energy Reviews, Elsevier, vol. 79(C), pages 1518-1534.
    14. Severin Borenstein & Stephen Holland, 2005. "On the Efficiency of Competitive Electricity Markets with Time-Invariant Retail Prices," RAND Journal of Economics, The RAND Corporation, vol. 36(3), pages 469-493, Autumn.
    15. Roger E. Bohn & Michael C. Caramanis & Fred C. Schweppe, 1984. "Optimal Pricing in Electrical Networks over Space and Time," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 360-376, Autumn.
    16. Silva, Susana & Soares, Isabel & Pinho, Carlos, 2020. "Climate change impacts on electricity demand: The case of a Southern European country," Utilities Policy, Elsevier, vol. 67(C).
    17. Zheng, Shuguang & Huang, Guohe & Zhou, Xiong & Zhu, Xiaohang, 2020. "Climate-change impacts on electricity demands at a metropolitan scale: A case study of Guangzhou, China," Applied Energy, Elsevier, vol. 261(C).
    18. Richard Green, 2021. "Shifting supply as well as demand: the new economics of electricity with high renewables," Chapters, in: Jean-Michel Glachant & Paul L. Joskow & Michael G. Pollitt (ed.), Handbook on Electricity Markets, chapter 15, pages 408-427, Edward Elgar Publishing.
    19. Antweiler, Werner, 2021. "Microeconomic models of electricity storage: Price Forecasting, arbitrage limits, curtailment insurance, and transmission line utilization," Energy Economics, Elsevier, vol. 101(C).
    20. Crew, Michael A & Fernando, Chitru S & Kleindorfer, Paul R, 1995. "The Theory of Peak-Load Pricing: A Survey," Journal of Regulatory Economics, Springer, vol. 8(3), pages 215-248, November.
    21. Paul L. Joskow & Catherine D. Wolfram, 2012. "Dynamic Pricing of Electricity," American Economic Review, American Economic Association, vol. 102(3), pages 381-385, May.
    22. Aagaard,Todd S. & Kleit,Andrew N., 2022. "Electricity Capacity Markets," Cambridge Books, Cambridge University Press, number 9781108747424, January.
    23. Nicholas Rivers and Blake Shaffer, 2020. "Stretching the Duck: How Rising Temperatures will Change the Level and Shape of Future Electricity Consumption," The Energy Journal, International Association for Energy Economics, vol. 0(Number 5), pages 55-88.
    24. Pfenninger, Stefan & Keirstead, James, 2015. "Renewables, nuclear, or fossil fuels? Scenarios for Great Britain’s power system considering costs, emissions and energy security," Applied Energy, Elsevier, vol. 152(C), pages 83-93.
    25. Gunnar Luderer & Silvia Madeddu & Leon Merfort & Falko Ueckerdt & Michaja Pehl & Robert Pietzcker & Marianna Rottoli & Felix Schreyer & Nico Bauer & Lavinia Baumstark & Christoph Bertram & Alois Dirna, 2022. "Impact of declining renewable energy costs on electrification in low-emission scenarios," Nature Energy, Nature, vol. 7(1), pages 32-42, January.
    26. Abrell, Jan & Rausch, Sebastian, 2016. "Cross-country electricity trade, renewable energy and European transmission infrastructure policy," Journal of Environmental Economics and Management, Elsevier, vol. 79(C), pages 87-113.
    27. Catherine D. Wolfram, 1998. "Strategic Bidding in a Multiunit Auction: An Empirical Analysis of Bids to Supply Electricity in England and Wales," RAND Journal of Economics, The RAND Corporation, vol. 29(4), pages 703-725, Winter.
    28. Michael Pahle, Wolf-Peter Schill, Christian Gambardella, and Oliver Tietjen, 2016. "Renewable Energy Support, Negative Prices, and Real-time Pricing," The Energy Journal, International Association for Energy Economics, vol. 0(Sustainab).
    29. Antweiler, Werner, 2017. "A two-part feed-in-tariff for intermittent electricity generation," Energy Economics, Elsevier, vol. 65(C), pages 458-470.
    30. Chang, Yoosoon & Kim, Chang Sik & Miller, J. Isaac & Park, Joon Y. & Park, Sungkeun, 2016. "A new approach to modeling the effects of temperature fluctuations on monthly electricity demand," Energy Economics, Elsevier, vol. 60(C), pages 206-216.
    31. repec:cdl:ucscec:qt20j4s847 is not listed on IDEAS
    32. Stefan Ambec & Claude Crampes, 2019. "Decarbonizing Electricity Generation with Intermittent Sources of Energy," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 6(6), pages 1105-1134.
    33. Aagaard,Todd S. & Kleit,Andrew N., 2022. "Electricity Capacity Markets," Cambridge Books, Cambridge University Press, number 9781108489652, January.
    34. Craig, Michael T. & Cohen, Stuart & Macknick, Jordan & Draxl, Caroline & Guerra, Omar J. & Sengupta, Manajit & Haupt, Sue Ellen & Hodge, Bri-Mathias & Brancucci, Carlo, 2018. "A review of the potential impacts of climate change on bulk power system planning and operations in the United States," Renewable and Sustainable Energy Reviews, Elsevier, vol. 98(C), pages 255-267.
    35. Frank A. Wolak, 2021. "Wholesale electricity market design," Chapters, in: Jean-Michel Glachant & Paul L. Joskow & Michael G. Pollitt (ed.), Handbook on Electricity Markets, chapter 4, pages 73-110, Edward Elgar Publishing.
    36. Carson, Richard T. & Novan, Kevin, 2013. "The private and social economics of bulk electricity storage," Journal of Environmental Economics and Management, Elsevier, vol. 66(3), pages 404-423.
    37. Guo, Bowei, 2023. "The spillover effect of peak pricing," Journal of Environmental Economics and Management, Elsevier, vol. 121(C).
    38. Haller, Markus & Ludig, Sylvie & Bauer, Nico, 2012. "Bridging the scales: A conceptual model for coordinated expansion of renewable power generation, transmission and storage," Renewable and Sustainable Energy Reviews, Elsevier, vol. 16(5), pages 2687-2695.
    39. David P. Brown & Andrew Eckert & Douglas Silveira, 2023. "Screening for Collusion in Wholesale Electricity Markets: A Review of the Literature," Working Papers 2023-7, University of Alberta, Department of Economics.
    40. Severin Borenstein & James B. Bushnell & Frank A. Wolak, 2002. "Measuring Market Inefficiencies in California's Restructured Wholesale Electricity Market," American Economic Review, American Economic Association, vol. 92(5), pages 1376-1405, December.
    41. Auffhammer, Maximilian, 2022. "Climate Adaptive Response Estimation: Short and long run impacts of climate change on residential electricity and natural gas consumption," Journal of Environmental Economics and Management, Elsevier, vol. 114(C).
    42. Qin, Pengcheng & Xu, Hongmei & Liu, Min & Xiao, Chan & Forrest, Kate E. & Samuelsen, Scott & Tarroja, Brian, 2020. "Assessing concurrent effects of climate change on hydropower supply, electricity demand, and greenhouse gas emissions in the Upper Yangtze River Basin of China," Applied Energy, Elsevier, vol. 279(C).
    43. Raymond T. Bye, 1926. "The Nature and Fundamental Elements of Costs," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 41(1), pages 30-62.
    44. Fan, Jing-Li & Hu, Jia-Wei & Zhang, Xian, 2019. "Impacts of climate change on electricity demand in China: An empirical estimation based on panel data," Energy, Elsevier, vol. 170(C), pages 880-888.
    45. Michael Pahle, Wolf-Peter Schill, Christian Gambardella, and Oliver Tietjen, 2016. "Renewable Energy Support, Negative Prices, and Real-time Pricing," The Energy Journal, International Association for Energy Economics, vol. 0(Sustainab).
    46. Steven L. Puller & Jeremy West, 2013. "Efficient Retail Pricing in Electricity and Natural Gas Markets," American Economic Review, American Economic Association, vol. 103(3), pages 350-355, May.
    47. Brown, David P. & Eckert, Andrew & Silveira, Douglas, 2023. "Screening for collusion in wholesale electricity markets: A literature review," Utilities Policy, Elsevier, vol. 85(C).
    48. Peter Cramton & Axel Ockenfels & Steven Stoft, 2013. "Capacity Market Fundamentals," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 2).
    49. Bogdanov, Dmitrii & Ram, Manish & Aghahosseini, Arman & Gulagi, Ashish & Oyewo, Ayobami Solomon & Child, Michael & Caldera, Upeksha & Sadovskaia, Kristina & Farfan, Javier & De Souza Noel Simas Barbos, 2021. "Low-cost renewable electricity as the key driver of the global energy transition towards sustainability," Energy, Elsevier, vol. 227(C).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Felix Schmidt, 2025. "On long-duration storage, weather uncertainty and limited foresight," Papers 2505.12538, arXiv.org, revised Jun 2025.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Antweiler, Werner & Muesgens, Felix, 2024. "The new merit order: The viability of energy-only electricity markets with only intermittent renewable energy sources and grid-scale storage," Ruhr Economic Papers 1064, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    2. Antweiler, Werner & Muesgens, Felix, 2021. "On the long-term merit order effect of renewable energies," Energy Economics, Elsevier, vol. 99(C).
    3. Christian Gambardella & Michael Pahle & Wolf-Peter Schill, 2016. "Do Benefits from Dynamic Tariffing Rise? Welfare Effects of Real-Time Pricing under Carbon-Tax-Induced Variable Renewable Energy Supply," Discussion Papers of DIW Berlin 1621, DIW Berlin, German Institute for Economic Research.
    4. Keppler, Jan Horst & Quemin, Simon & Saguan, Marcelo, 2022. "Why the sustainable provision of low-carbon electricity needs hybrid markets," Energy Policy, Elsevier, vol. 171(C).
    5. Mier, Mathias, 2021. "Efficient pricing of electricity revisited," Energy Economics, Elsevier, vol. 104(C).
    6. Christian Gambardella & Michael Pahle & Wolf-Peter Schill, 2020. "Do Benefits from Dynamic Tariffing Rise? Welfare Effects of Real-Time Retail Pricing Under Carbon Taxation and Variable Renewable Electricity Supply," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 75(1), pages 183-213, January.
    7. Klaus Eisenack & Mathias Mier, 2019. "Peak-load pricing with different types of dispatchability," Journal of Regulatory Economics, Springer, vol. 56(2), pages 105-124, December.
    8. Helm, Carsten & Mier, Mathias, 2016. "Efficient diffusion of renewable energies: A roller-coaster ride," VfS Annual Conference 2016 (Augsburg): Demographic Change 145893, Verein für Socialpolitik / German Economic Association.
    9. Carsten Helm & Mathias Mier, 2020. "Steering the Energy Transition in a World of Intermittent Electricity Supply: Optimal Subsidies and Taxes for Renewables Storage," ifo Working Paper Series 330, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    10. Helm, Carsten & Mier, Mathias, 2021. "Steering the energy transition in a world of intermittent electricity supply: Optimal subsidies and taxes for renewables and storage," Journal of Environmental Economics and Management, Elsevier, vol. 109(C).
    11. Hubert Stahn & Jean-Henry Ferrasse & Nandeeta Neerunjun, 2021. "Managing intermittency in the electricity market," Post-Print hal-04552290, HAL.
    12. Helm, Carsten & Mier, Mathias, 2019. "On the efficient market diffusion of intermittent renewable energies," Energy Economics, Elsevier, vol. 80(C), pages 812-830.
    13. Joyce Nyuma Chivunga & Zhengyu Lin & Richard Blanchard, 2023. "Power Systems’ Resilience: A Comprehensive Literature Review," Energies, MDPI, vol. 16(21), pages 1-31, October.
    14. Majidi, Hassan & Hayati, Mohammad Mohsen & Breyer, Christian & Mohammadi-ivatloo, Behnam & Honkapuro, Samuli & Karjunen, Hannu & Laaksonen, Petteri & Sihvonen, Ville, 2025. "Overview of energy modeling requirements and tools for future smart energy systems," Renewable and Sustainable Energy Reviews, Elsevier, vol. 212(C).
    15. Ferrasse, Jean-Henry & Neerunjun, Nandeeta & Stahn, Hubert, 2022. "Intermittency and electricity retailing: An incomplete market approach," Mathematical Social Sciences, Elsevier, vol. 120(C), pages 24-36.
    16. Brown, David P. & Eckert, Andrew & Silveira, Douglas, 2023. "Screening for collusion in wholesale electricity markets: A literature review," Utilities Policy, Elsevier, vol. 85(C).
    17. Aghahosseini, Arman & Solomon, A.A. & Breyer, Christian & Pregger, Thomas & Simon, Sonja & Strachan, Peter & Jäger-Waldau, Arnulf, 2023. "Energy system transition pathways to meet the global electricity demand for ambitious climate targets and cost competitiveness," Applied Energy, Elsevier, vol. 331(C).
    18. Lopez, Gabriel & Pourjamal, Yousef & Breyer, Christian, 2025. "Paving the way towards a sustainable future or lagging behind? An ex-post analysis of the International Energy Agency's World Energy Outlook," Renewable and Sustainable Energy Reviews, Elsevier, vol. 212(C).
    19. ElSayed, Mai & Aghahosseini, Arman & Caldera, Upeksha & Breyer, Christian, 2023. "Analysing the techno-economic impact of e-fuels and e-chemicals production for exports and carbon dioxide removal on the energy system of sunbelt countries – Case of Egypt," Applied Energy, Elsevier, vol. 343(C).
    20. Bogdanov, Dmitrii & Ram, Manish & Khalili, Siavash & Aghahosseini, Arman & Fasihi, Mahdi & Breyer, Christian, 2024. "Effects of direct and indirect electrification on transport energy demand during the energy transition," Energy Policy, Elsevier, vol. 192(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:145:y:2025:i:c:s0140988325002634. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eneco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.