Tag Archives: Merit-order effect

The merit-order effect in the Italian power market: The impact of solar and wind generation on national wholesale electricity prices

Highlights
• We find empirical evidence of the merit-order effect in the Italian market.
• 1 GWh from solar and wind (hourly average) reduces prices by 2.3€/MW and 4.2€/MWh.
• The impact of RES on price has declined as RES production has increased.
• Monetary savings from solar production do not compensate the cost of the incentives.
• Monetary savings from wind production are higher than the cost of the incentives.

Abstract
Italy promoted one of the most generous renewable support schemes worldwide which resulted in a high increase of solar power generation. We analyze the Italian day-ahead wholesale electricity market, finding empirical evidence of the merit-order effect. Over the period 2005–2013 an increase of 1 GWh in the hourly average of daily production from solar and wind sources has, on average, reduced wholesale electricity prices by respectively 2.3€/MWh and 4.2€/MWh and has amplified their volatility. The impact on prices has decreased over time in correspondence with the increase in solar and wind electricity production. We estimate that, over the period 2009–2013, solar production has generated higher monetary savings than wind production, mainly because the former is more prominent than the latter. However, in the solar case, monetary savings are not sufficient to compensate the cost of the related supporting schemes which are entirely internalized within end-user tariffs, causing a reduction of the consumer surplus, while the opposite occurs in the case of wind.

Read “The merit-order effect in the Italian power market: The impact of solar and wind generation on national wholesale electricity prices” on Energy Policy 

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