Merit-Order

As a merit order (English for order of performance / of Merit ) refers to the sequence of use of the power plants. This is determined by the marginal cost of electricity generation.

Starting with the lowest marginal cost power plants are long switched with higher marginal costs until demand is met. At the current stock market determines the final bid, which still receives a supplement, the price of electricity ( market clearing price). The price of electricity is thus determined by the most expensive power plant, which is still needed to meet the current demand. This plant is also called marginal plant.

Merit - order effect

The merit-order effect is the displacement of expensive production plants by the market entry of a power plant with lower marginal costs, eg by the injection of such a power plant to the grid. According to the compensation mechanism regulation by the EEG ( electricity from wind, water, solar energy, biomass, etc ) will be injected current since 2010 by the transmission system operators (TSOs ) on the spot market ( EPEX SPOT ) marketed in Germany. By 2010 the TSO had to refine the fluctuating EEG electricity amounts to a power strip and were to also on the power exchange active. In times of high EEG electricity feeding the EEG electricity displaces electricity from the most expensive conventional power plants and lowers so on the merit-order effect than the market price. However, to be paid by the domestic electricity customers EEG apportionment increased the total price for electricity, so that the total EEG levy rate (currently 6.24 ct / kWh) loaded end users ( residential, commercial and some industrial consumers) total pay more for electricity.

Seems noon ( at peak load times ) a lot of sun, then displaces the electricity from photovoltaic plants often expensive oil or gas power plants. This drops the price of electricity. The wind power displaces large amounts of conventional power plants and can be cheaper over the merit-order effect the purchase of electricity on the market. This was in 2006, to an extent the case that an average price reduction of 7.83 euros per megawatt hour was effected, as a study by the Fraunhofer ISI shows. A major factor for this was the high fuel prices ( especially gas). This study assumes that injections of current can be accurately predicted from renewable energy sources and that all the electricity needed is about the power exchange. A study by the Research Institute for Energy reported a price reduction effect of 2.4 ( € / MWh) / GWREG. With an average supply of 4.6 GW of wind power results in an average reduction of electricity prices by 11.0 € / MWh. However, the current more expensive at the same time by the EEG apportionment, since 2013 this is € 52.8 / MWh, a total of about 20 billion euros / year for EE are already in 2012 been paid extra, for the next years is an increase to be expected.

The graph illustrates the effect of the effect. The aggregate supply function ( blue) is formed from the precepts of individual electricity providers and generally corresponds to their marginal cost. The demand (green) is inelastic and is first satisfied from the sources according to the EEG, so that only the residual demand - the so-called residual load - is supported by the conventional power generators, the most expensive no longer play a part and the so- determined current price to Ap decreases. In this way, renewable energy to reduce the price of electricity on the exchange, because expensive peak load power plants are increasingly rare, the price-setting power plant on the market, but power plants with lower marginal costs.

This reduces the contribution of the low base load power plants such as hydroelectric, nuclear and lignite-fired power plants, which are now at p2 generate less surplus than. The merit-order effect can thus reduce the market price for electricity at the expense of power plant operators. A net reduction for the consumer may arise even if the compensation is due to the Act on the price level, if caused by the merit-order effect output reduction for conventional power

Total is greater than the cost of the electricity from renewable sources

In this case, the slope of the merit-order curve

At high load quite steep and the price of EEG electricity is relatively little higher than the market price level, such as on some winter days with moderate wind returns.

In addition to the energy exchange of the merit-order effect always occurs where commodities are traded, ie goods with identical properties (" fungible "). This concerns, for example, the physical trading of crude oil, as the production costs of the last required to cover the demand of oil source, the cost of the marginal barrel, determine the price. However, in contrast to the current, the shelf life of the oil plays an additional role.

Effects

Overall, the current prices on the electricity market EPEX since 2000 ( entry into force of the EEG Act) by approximately 100 % from approximately 2 ct / kWh to about 4 cents / kWh have increased, a decrease in electricity prices ( by about 6 ct / kWh by 2008 to now 4 ct ), however, is largely a function of the excess supply of coal on the world market decline was caused by substitution of the United States from coal to shale gas. About the merit-order effect thus decreases the price of control current.

The EEG apportionment in 2013 increased to 5.28 ct / kWh. Overall, the German electricity price is the second highest in Europe.

The " Federal Ministry for the Environment, Nature Conservation and Nuclear Safety " presented in 2007, however, determine the cost savings over the merit-order effect of renewable energies lie in Germany after the review of the Federal Ministry for the Environment in 2006 at € 5.0 billion, which is about the additional costs of € 3.3 billion, compared to conventional power generation. The model calculation for calculating the merit-order effect of the EEG power generation in 2006 is found in a study by the Fraunhofer Institute for Systems and Innovation Research (ISI, Karlsruhe). Here were distinguished on the electricity market

The market value effect,
The CO2 effect and
The merit order effect.

" If you look at the market value of renewable energy and the specific in this study volume of the merit-order effect in common, there is a significant reduction of the damage caused by the Renewable Energy Sources Act costs. For the year 2006, the sum of market value and merit-order effect is even higher than the total EEG compensation sum. "

For 2010, a study at TU Berlin by savings in the order of an average of 8 € / MWh is based. In sum would result for the year 2010 € 1.78 billion. Medium to long term could adjust depending on the future development of both a positive as well as negative merit-order effect. According to calculations by the Fraunhofer Institute for Systems and Innovation Research ( ISI Karlsruhe ) on behalf of the BMU, lowers the Renewable Energy Act the market price of electricity by about 0.6 cents / kWh. In order for the renewable energy and the further expansion have a strong price-dampening effect on the market price of electricity. In terms of total German electricity consumption this results in a relief effect of EUR 2.8 billion for 2009. The study comes to the conclusion that electricity-intensive companies, the relief provided by the merit-order effect exceeds the additional costs due to the Act and thus a net relief is achieved. For the remaining electricity customers the additional costs of the EEG (assessment of 3.5 cents per kWh in 2011 ), however, a possible reduction effect even exceed if the merit-order effect in the full amount would be beneficial to the customer. In December 2011, the spot market prices fell on the energy exchange due to the extremely high electricity production from wind energy by 22% compared with the previous month and were thus at the level of August 2010.

The Institute expects for 2014 declining household electricity prices due to the merit-order effect - despite arithmetically increasing allocation for renewable energy, as it is measured as the difference to the sinking stock market electricity prices. " The results show that only the views of the EEG apportionment is not sufficient to answer the crucial question: How does the promotion of renewable energies on the cost of power ," said the institute. The sum of market price of electricity and EEG apportionment according to his fancy analyzes a much better indicator for the evaluation of the current price trend. The passing of this falling system costs to customers legally itself as one of the essential but largely ignored political challenges

Criticism

In a working paper of the Institute of Energy Economics at the University of Cologne ( EWI) criticism is that the merit-order model is appropriate for the calculation of short-term effects, but not for the calculation of long-term effects, because in the longer term to renewable energies, the composition of the tender conventional power plants change. In addition, there is criticism that the model assume that all electricity produced will traded on an exchange, but what actually is the case for only a small part.

The Research Institute for Energy ( FfE ) emphasizes that it was the merit-order effect of short-term price changes. With increased use of renewable energy, the power plant to passe. This then follows a new merit order. In addition, it is noted that the merit - order effect is not directly reducing the electricity production costs because the high investment costs for power generation plants from renewable energy sources were not considered here. Comparable to the Monopolies Commission said in its special report on energy.

The lower stock prices in turn require higher EEG differential costs. This results in a higher EEG apportionment for the final consumer.

Medium to long term it is expected that the current pricing according to merit order must be supplemented. With an income, which is based solely on the delivered work, the incentive to build and holding of reserve capacity with low utilization is missing. Therefore, thinking about the design of capacity markets, which offers similar performance-based compensation to the control power market.

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