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The Merit Order Effect of Wind Generation on the Irish Electricity Market

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  • O'Mahoney, Amy
  • Denny, Eleanor

Abstract

This paper considers the cost savings arising from wind generation through the merit order effect in gross pool electricity markets, using the Irish electricity market as a case study. The Irish electricity market makes for a good testing ground due to the fact that it is a single market with very little interconnection to other markets, allowing impacts of wind to be more clearly identified than on a more interconnected system. Ireland also has extremely ambitious renewable energy targets, resulting in a high penetration of wind generation. The authors estimate the historic cost savings arising from wind generation in the Irish electricity marketusing an hourly time series OLS regression model for 2009. We find that the value of wind to the market dispatch has resulted in savings of €141 million to the market dispatch. We find that the total costs to the market would have been in the region of 12% higher over the course of the year had no wind output been available. These savings are significantly greater than the subsidy received for wind-generated electricity over this time period, and as a result it can be seen that the positive externalities derived from wind generated electricity outweigh the cost of the subsidy; particularly when one considers the CO2 saving to the market and accepts that all forms of generation impose integration costs to electricity systems.

Suggested Citation

  • O'Mahoney, Amy & Denny, Eleanor, 2011. "The Merit Order Effect of Wind Generation on the Irish Electricity Market," MPRA Paper 56043, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:56043
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    References listed on IDEAS

    as
    1. Devitt, Conor & Diffney, Seán & FitzGerald, John & Lyons, Seán & Malaguzzi Valeri, Laura, 2009. "The Likely Economic Impact of Increasing Investment in Wind on the Island of Ireland," Papers WP334, Economic and Social Research Institute (ESRI).
    2. Malaguzzi Valeri, Laura, 2009. "Welfare and competition effects of electricity interconnection between Ireland and Great Britain," Energy Policy, Elsevier, vol. 37(11), pages 4679-4688, November.
    3. Felder, Frank A., 2011. "Examining Electricity Price Suppression Due to Renewable Resources and Other Grid Investments," The Electricity Journal, Elsevier, vol. 24(4), pages 34-46, May.
    4. Troy, Niamh & Denny, Eleanor & O'Malley, Mark, 2010. "Base-load cycling on a system with significant wind penetration," MPRA Paper 34848, University Library of Munich, Germany.
    5. Sensfuß, Frank & Ragwitz, Mario & Genoese, Massimo, 2008. "The merit-order effect: A detailed analysis of the price effect of renewable electricity generation on spot market prices in Germany," Energy Policy, Elsevier, vol. 36(8), pages 3076-3084, August.
    6. Denny, Eleanor & O'Malley, Mark, 2009. "The impact of carbon prices on generation-cycling costs," Energy Policy, Elsevier, vol. 37(4), pages 1204-1212, April.
    7. Dale, Lewis & Milborrow, David & Slark, Richard & Strbac, Goran, 2004. "Total cost estimates for large-scale wind scenarios in UK," Energy Policy, Elsevier, vol. 32(17), pages 1949-1956, November.
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    More about this item

    Keywords

    Electricity Markets; Renewable Energy; Merit Order Effect;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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