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

Author

Listed:
  • 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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    File URL: https://mpra.ub.uni-muenchen.de/56043/1/USAEE%20Washington%20Paper.pdf
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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. 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.
    4. 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.
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    Cited by:

    1. Hirth, Lion & Ueckerdt, Falko, 2013. "Redistribution effects of energy and climate policy: The electricity market," Energy Policy, Elsevier, vol. 62(C), pages 934-947.
    2. Thure Traber & Claudia Kemfert, 2015. "Renewable Energy Support in Germany: Surcharge Development and the Impact of a Decentralized Capacity Mechanism," Discussion Papers of DIW Berlin 1452, DIW Berlin, German Institute for Economic Research.
    3. Sébastien Phan & Fabien Roques, 2015. "Is the depressive effect of renewables on power prices contagious? A cross border econometric analysis," Cambridge Working Papers in Economics 1527, Faculty of Economics, University of Cambridge.
    4. Hirth, Lion, 2013. "The market value of variable renewables," Energy Economics, Elsevier, vol. 38(C), pages 218-236.
    5. Würzburg, Klaas & Labandeira, Xavier & Linares, Pedro, 2013. "Renewable generation and electricity prices: Taking stock and new evidence for Germany and Austria," Energy Economics, Elsevier, vol. 40(S1), pages 159-171.
    6. Faddy Ardian & Silvia Concettini & Anna Creti, 2015. "Intermittent renewable generation and network congestion: an empirical analysis of Italian Power Market," Working Papers hal-01218543, HAL.
    7. Ciarreta, Aitor & Espinosa, Maria Paz & Pizarro-Irizar, Cristina, 2014. "Is green energy expensive? Empirical evidence from the Spanish electricity market," Energy Policy, Elsevier, vol. 69(C), pages 205-215.
    8. Clò, Stefano & Cataldi, Alessandra & Zoppoli, Pietro, 2015. "The merit-order effect in the Italian power market: The impact of solar and wind generation on national wholesale electricity prices," Energy Policy, Elsevier, vol. 77(C), pages 79-88.
    9. Thakur, Jagruti & Rauner, Sebastian & Darghouth, Naïm R. & Chakraborty, Basab, 2018. "Exploring the impact of increased solar deployment levels on residential electricity bills in India," Renewable Energy, Elsevier, vol. 120(C), pages 512-523.
    10. Castaneda, Monica & Jimenez, Maritza & Zapata, Sebastian & Franco, Carlos J. & Dyner, Isaac, 2017. "Myths and facts of the utility death spiral," Energy Policy, Elsevier, vol. 110(C), pages 105-116.
    11. Niall Farrell, 2014. "Chapter 06: Wind Energy in Ireland," Chapters from Rural Economic Development in Ireland, in: Rural Economic Development in Ireland, edition 1, chapter 6, Rural Economy and Development Programme,Teagasc.
    12. Aravena, Claudia & Martinsson, Peter & Scarpa, Riccardo, 2014. "Does money talk? — The effect of a monetary attribute on the marginal values in a choice experiment," Energy Economics, Elsevier, vol. 44(C), pages 483-491.
    13. Sapio, Alessandro, 2019. "Greener, more integrated, and less volatile? A quantile regression analysis of Italian wholesale electricity prices," Energy Policy, Elsevier, vol. 126(C), pages 452-469.
    14. Lion Hirth, 2013. "The Market Value of Variable Renewables. The Effect of Solar and Wind Power Variability on their Relative Price," RSCAS Working Papers 2013/36, European University Institute.
    15. Dillig, Marius & Jung, Manuel & Karl, Jürgen, 2016. "The impact of renewables on electricity prices in Germany – An estimation based on historic spot prices in the years 2011–2013," Renewable and Sustainable Energy Reviews, Elsevier, vol. 57(C), pages 7-15.
    16. Daron Acemoglu, Ali Kakhbod, and Asuman Ozdaglar, 2017. "Competition in Electricity Markets with Renewable Energy Sources," The Energy Journal, International Association for Energy Economics, vol. 0(KAPSARC S).
    17. Gürtler, Marc & Paulsen, Thomas, 2018. "The effect of wind and solar power forecasts on day-ahead and intraday electricity prices in Germany," Energy Economics, Elsevier, vol. 75(C), pages 150-162.
    18. Janda, Karel, 2018. "Slovak electricity market and the price merit order effect of photovoltaics," Energy Policy, Elsevier, vol. 122(C), pages 551-562.
    19. Clancy, J.M. & Gaffney, F. & Deane, J.P. & Curtis, J. & Ó Gallachóir, B.P., 2015. "Fossil fuel and CO2 emissions savings on a high renewable electricity system – A single year case study for Ireland," Energy Policy, Elsevier, vol. 83(C), pages 151-164.
    20. Bublitz, Andreas & Keles, Dogan & Fichtner, Wolf, 2017. "An analysis of the decline of electricity spot prices in Europe: Who is to blame?," Energy Policy, Elsevier, vol. 107(C), pages 323-336.
    21. Bruce Mountain, 2013. "Market Power and Generation from Renewables: the Case of Wind in the South Australian Electricity Market," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 1).

    More about this item

    Keywords

    Electricity Markets; Renewable Energy; Merit Order Effect;

    JEL classification:

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

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