Merit order

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

Merit order of the German conventional power plant park in 2008, source: Forschungsstelle für Energiewirtschaft e. V.

Starting with the lowest marginal costs , power plants with higher marginal costs are switched on until demand is met. On the electricity exchange , the last bid to be accepted determines the electricity price. The price for electrical energy is therefore determined by the most expensive power plant that is still needed to meet the demand for electricity. This power plant is also called a marginal power plant - not to be confused with a marginal power plant positioned in the border area.

Merit order effect

The merit order effect is the displacement of power plants with high marginal costs by power plants with lower marginal costs . This became particularly evident through the expansion of renewable energies: with high yields from wind and solar power, the residual load decreases and the then active marginal power plant, usually a thermal power plant that determines the market price, has lower variable costs with such a system status.

In times of high EEG electricity feed-in, EEG electricity displaces electricity from the most expensive conventional power plants and thus lowers the market price via the merit order effect. However, the EEG surcharge to be paid by domestic electricity consumers increases the total price for electricity, so that the end consumers (private, commercial and some industrial consumers) charged with the full EEG surcharge rate (currently 2020: 6.756 ct / kWh) more pay for electricity.

Merit order effect: By feeding in through non-disposable PV and wind systems, the residual load is reduced from N ₁ to N ₂ and the market price falls from p ₁ to p ₂

If there is a lot of sunshine at noon (at peak load times), the electricity from photovoltaic systems often displaces expensive oil or gas power plants. This causes the price of electricity to fall. Wind power is also displacing large quantities of conventional power plants and, thanks to the merit order effect, makes purchasing electricity cheaper in retail.

This was the case in 2006 to such an extent that an average price reduction of EUR 7.83 per megawatt hour (0.783 ct / kWh) was achieved, as a study by Fraunhofer ISI shows. A major factor in this was the high fuel prices (especially gas).

The graphic shows the effect of the effect. The aggregated supply function (blue) is formed from the bids of individual electricity providers and generally corresponds to their marginal costs . The demand (consumer load in green) is shown as inelastic (vertical line). Non- disposable feed-ins from wind and solar energy with very low marginal costs cover part of the consumer load, so that only the remaining output, called residual load , has to be borne by the conventional disposable generators. The most expensive power plants are no longer used and the electricity price drops by Δp on the market due to the decline in demand ΔN in the conventional power plant fleet . In this way, renewable energies lower the electricity price on the exchange, because expensive peak load power plants are less and less the price-determining power plant on the market, but rather power plants with lower marginal costs from the base load and medium load segment.

This reduces the contribution margin of the cheap base load power plants such as B. run-of-river, nuclear and lignite power plants, which now generate less surplus at p ₂ than at p ₁ . The merit order effect can thus lower the exchange price for electricity at the expense of the power plant operator. A net relief for the consumer can arise, even if the remuneration through the EEG is above the price level p ₁ , if the reduction in expenditure for conventional electricity caused by the merit order effect

${\displaystyle (p_{1}-p_{2})\cdot N_{2}}$

overall is greater than the expenditure for electricity from renewable energies

${\displaystyle (N_{1}-N_{2})\cdot p_{\mathrm {EEG} }}$.

In this case is the slope of the merit order curve

${\displaystyle {\frac {p_{1}-p_{2}}{N_{1}-N_{2}}}}$

at high load quite steep and the price for EEG electricity p _EEG is only relatively little above the exchange price level p ₁ , such as B. on some winter days with moderate wind yields.

In addition to the power exchange, the merit order effect always occurs wherever commodities are traded, i.e. H. Goods with identical properties ( "reasonable property" ). This concerns z. B. also the physical trade in crude oil, since the production costs of the last oil well needed to meet the demand, the cost of the marginal barrel, determine the price. However, in contrast to electricity, the storability of crude oil plays an additional role.

Effects

Overall, after the liberalization of the electricity market in 1998, the electricity prices on the spot market rose from approx. 2 ct / kWh in 2001 to over 6 ct / kWh in 2008. A decrease in the baseload price to 3 ct (as of autumn 2015) can be explained by several effects. On the one hand, the CO ₂ certificate price decreased, so that lignite and hard coal power plants in particular could produce at lower variable costs. Then the demand has reduced, i. H. Peak power plants were consistently used less frequently as marginal power plants. The third is the merit order effect, which lowers prices through the addition of solar and wind turbines in particular at times with good yields from renewable energies that are dependent on supply. Fourth, after the boom in 2008, fuel prices (coal and gas) fell, among other things because of the expansion of shale gas production in the USA, including the substitution of coal by gas there, which increased the supply of coal on the world market .

The 2015 EEG surcharge for non-privileged end consumers is 6.17 ct / kWh. In 2014, the German electricity price was the second highest in Europe for household customers and the fourth highest for industrial customers.

The Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) determined in 2007 that the cost savings through the merit order effect of renewable energies would be € 5.0 billion in 2006, according to the EEG report of the Federal Environment Ministry, and thus more than the additional costs of € 3.3 billion compared to conventional electricity generation. The model calculation for calculating the merit order effect of EEG electricity generation for 2006 can be found in a study by the Fraunhofer Institute for Systems and Innovation Research (ISI, Karlsruhe). A distinction was made between on the electricity market

• Market value effect
• CO ₂ effect
• Merit order effect

“If you consider the market value of renewable energies and the volume of the merit order effect determined in this study together, there is a considerable reduction in the costs caused by the Renewable Energies Act. For 2006, the sum of the market value and the merit order effect is even higher than the total EEG remuneration. "

A study by the Research Center for the Energy Industry shows a price reduction effect of 2.4 (€ / MWh) / GW _REG . With an average feed-in of 4.6 GW of wind power, there is an average reduction in the electricity price of 11.0 € / MWh (1.1 ct / kWh) in 2008.

For 2010, a study by the TU Berlin assumes savings in the range of an average of 8 € / MWh (0.8 ct / kWh). In total, this would result in a merit order effect of € 1.78 billion for 2010 (multiplied by the day-ahead trading volume of 205 TWh). In the medium to long term, depending on future developments, both a positive and a negative merit order effect could arise.

According to calculations by the Fraunhofer Institute for Systems and Innovation Research (FhG-ISI Karlsruhe) from 2013, the Renewable Energy Sources Act lowered the baseload price by € 8.9 / MWh (0.89 ct / kWh) in 2012 . This means that renewable energies and further expansion have a price-dampening effect on the exchange prices for electricity. In relation to the entire German electricity consumption, this results in a relief of 4.88 billion euros. The study comes to the conclusion that in the case of electricity-intensive companies with a reduced EEG levy rate, the merit order effect exceeds the additional costs of the EEG and thus a net reduction is achieved.

A study published in the specialist journal Renewable and Sustainable Energy Reviews in 2016 came to a similar conclusion , in which the current situation was compared with a hypothetical scenario without renewable energies. Accordingly, the EEG surcharge of 20.4 billion euros due in 2013 is offset by price reductions on the electricity exchange amounting to 31.6 billion euros, which means that end consumers have saved a total of around 11.2 billion euros. However, the savings are distributed very differently: Due to the exemptions for industrial consumers, through which around 212 TWh or a third of the total consumption was partially or almost completely exempt from paying the EEG surcharge, these cost reductions on the electricity exchange were almost exclusively energy-intensive Companies, while there was no difference for households and small consumers. In the scenario without renewable energies, however, the electricity costs for energy-intensive companies would have been twice as high in 2013 as they actually were.

The Institute for Applied Ecology expected due to the merit order effect in 2014 declining household electricity prices despite theoretically increasing allocation for renewable energy, as this is measured as the difference to the declining stock market electricity prices. "The results show that just looking at the EEG surcharge is not enough to answer the crucial question: How does the promotion of renewable energies affect the costs of electricity supply?", Says the institute. According to his analyzes, the sum of the electricity price on the exchange and the EEG surcharge is a much better indicator for evaluating the development of electricity prices. Passing these falling system costs on to customers is thus proving to be one of the main, but politically largely ignored, challenges.

In addition to the price reduction due to the merit order effect, electrical energy is becoming more expensive due to the EEG surcharge, currently (as of 2015) around 21.8 billion euros are rolled over. Electricity-intensive companies can have this burden reduced in accordance with the special equalization scheme; They therefore benefit more from the merit order effect than they contribute to the financing of renewable energies via the reduced EEG surcharge.

criticism

In a working paper of the Institute of Energy Economics at the University of Cologne (EWI) it is criticized that the merit order model is only suitable for calculating short-term effects, but not for calculating long-term effects, because renewable energies affect the composition of the supply in the longer term conventional power plants. It is also criticized that the model assumes that all electricity produced is traded on an exchange, which is actually only the case for a small part.

The Research Center for Energy Economics (FfE) also emphasizes that the merit order effect is a matter of short-term price changes. With increased use of renewable energies, the power plant park will adapt. This then results in a new merit order. It is also pointed out that the merit order effect does not directly reduce the electricity production costs, since the high investment costs for electricity generation systems from renewable energies are not taken into account. The Monopolies Commission expressed itself in a similar way in its special energy report.

The lower exchange prices in turn result in higher EEG differential costs. This results in a higher EEG surcharge for the end consumer.

In the medium to long term, it is to be expected that the current pricing will have to be supplemented according to the merit order. In the case of an income that is based solely on the work performed, there is no incentive to build up and maintain reserve capacities with low utilization. Therefore, the design of capacity markets is being considered, which offers a performance-related remuneration similar to the control power market .

literature

• Jürgen Neubarth, Oliver Woll, Christoph Weber, Michael Gerecht: Influencing the spot market prices through wind power generation. Energy industry issues of the day, vol. 56, issue 7, 2006, pp. 42–45.
• Sven Bode, Helmuth Groscurth: On the effect of the EEG on the "electricity price". (PDF; 196 kB) HWWA Discussion Paper 348: Hamburg, August 2006.
• Serafin von Roon, Malte Huck: Merit Order of the power plant park. (PDF; 663 kB) Research Center for Energy Industry e. V .: Munich, June 2010.
• Federal Environment Ministry: Renewable energies in numbers - national and international development . BMU: Berlin, November 2007, p. 27. (PDF file; 6.26 MB)

swell

1. ↑ Federal Network Agency: EEG levy. In: Energy lexicon. Retrieved February 8, 2020 . 
2. ↑ ^{a b} Frank Sensfuß, Mario Ragwitz: Analysis of the price effect of electricity generation from renewable energies on the exchange prices in German electricity trading. , Karlsruhe: Fraunhofer ISI, 2007, 28 pages.
3. ↑ Quarterly average (usual price according to KWKG)
4. ^ Weber: Risks and perspectives in European Energy Markets , INREC - International Ruhr Energy Conference, Essen, 2015, p. 10.
5. ↑ Andreas Mihm: Energiewende - electricity on the stock exchange cheaper than it has been for years , FAZ.net , February 5, 2013
6. ↑ ^{a b} Information platform of the German TSOs: EEG surcharge 2015
7. ↑ eurostat: "Electricity and natural gas price statistics - household (1.1) & industrial (1.2) consumers". (No longer available online.) In: Eurostat . May 27, 2015, archived from the original on January 5, 2015 ; accessed on September 15, 2015 . Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice.  
8. ↑ Report 2007 on the Renewable Energy Sources Act. ( Memento of the original from January 24th, 2009 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. (PDF; 2.0 MB) on the website of the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety. 
9. ↑ Frank Sensfuß, Mario Ragwitz: Analysis of the price effect of electricity generation from renewable energies on exchange prices in German electricity trading. , Karlsruhe: Fraunhofer ISI, 2007, p. 16
10. ^ ^{A b} Serafin von Roon, Malte Huck: Merit Order of the power plant park. (PDF; 663 kB) on the website of the Research Center for Energy Economics. June 2010.
11. ↑ Georg Erdmann: Costs of the expansion of renewable energies (PDF; 928 kB), study on behalf of the Association of Bavarian Economy. V., Munich, 2011, p. 52.
12. ↑ Frank Sensfuß: "Analyzes on the merit-order effect of renewable energies". In: Fraunhofer Institute for Systems and Innovation Research . September 13, 2013, accessed September 15, 2015 . 
13. ↑ Dillig et al., The impact of renewables on electricity prices in Germany - An estimation based on historic spot prices in the years 2011–2013 . In: Renewable and Sustainable Energy Reviews 57, (2016), 7–15, doi : 10.1016 / j.rser.2015.12.003 .
14. ^ Haller, Hermann, Loreck, Matthes, Cook: EEG surcharge and the cost of power supply for 2014. An analysis of trends, causes and interactions. Berlin: Öko-Institut, June 2013 (PDF; 1.0 MB)
15. ↑ Cludius et al., The merit order effect of wind and photovoltaic electricity generation in Germany 2008–2016: Estimation and distributional implications . In: Energy Economics 44, (2014), 302-313, doi: 10.1016 / j.eneco.2014.04.020 .
16. ↑ Ralf Wissen, Marco Nicolosi: Comments on the current discussion on the merit order effect of renewable energies. ( Memento of the original from December 14, 2014 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. (PDF; 655 kB) on the website of the Energy Economics Institute at the University of Cologne. September 2007. (EWI Working Paper, No. 07/3.) 
17. ↑ Monopolies Commission: Energy 2013: Competition in Times of the Energy Transition (PDF; 6.5 MB), September 2013.
18. ↑ Bernd Wenzel, Joachim Nitsch: Long-term scenarios and strategies for the expansion of renewable energies in Germany, taking into account developments in Europe and globally.  ( Page no longer available , search in web archives )  Info: The link was automatically marked as defective. Please check the link according to the instructions and then remove this notice. (PDF; 1.2 MB) June 2010, p. 22. (Study commissioned by the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety)  
19. ↑ Oliver Kopp: Capacity markets: electricity trading in a new design  ( page no longer available , search in web archives )  Info: The link was automatically marked as defective. Please check the link according to the instructions and then remove this notice. (PDF; 444 kB), Keynote speech at the specialist discussion "New Energies, New Market" Bündnis 90 / Die Grünen, Berlin, October 27, 2010.