The merit order effect of solar power: Consumer and sectoral impacts under the Renewables Obligation and Feed-in Tariff schemes in the United Kingdom

Solar power has become an increasingly important component of the United Kingdom's electricity system, yet its economic impacts remain less well understood than those of wind power. This study examines the merit order effect of solar generation on wholesale electricity prices and evaluates its implications for consumers and the wider electricity sector. Using daily average hourly data from April 2014 to March 2024, the analysis shows that solar generation significantly reduces wholesale electricity prices, although the magnitude of this effect varies across market conditions. In most years, the reduction in electricity expenditure was insufficient to offset the costs of the Renewables Obligation and Feed-in Tariff schemes, leading to net consumer losses. During the 2021–23 energy crisis, however, exceptionally high wholesale prices amplified the price-reducing effect of solar generation, generating substantial consumer gains. Beyond consumer impacts, the study quantifies sector-wide benefits from reduced fossil fuel imports and lower carbon emissions, which remain positive throughout the sample period. A comparison of the two schemes highlights trade-offs in policy design. The RO delivered solar capacity at lower costs and generated larger sector-wide gains, reflecting its emphasis on cost-effectiveness, while the FIT provided greater investment certainty and encouraged broad participation, albeit at higher costs.