IEEE Power & Energy Magazine - January/February 2021 - 55

180

Demand
Supply
Supply With Lower
Renewable Energy Sources

160
140
120
100
80

P

60

P∗

40
20
0

0

5,000

15,000 20,000 25,000
Energy (MWh)

30,000 35,000

figure 2. An illustration of the merit-order effect on the Portuguese day-ahead

150

Price (€/MWh)

Various studies have recently in-- market prices.
vestigated the merit-order effect
of renewable generation in European markets. Two representative examples are presented in this article. The first one
focused on the Portuguese day-ahead prices and was conducted by the National Laboratory of Energy and Geology.
The time period of the study ranged from 1 January to 30
June 2016 (a total of 4,368 h). The simulations considered
data extracted from the Iberian (Spanish and Portuguese)
electricity market and were performed with the agent-based
simulation tool, MATREM (for Multi-Agent Trading in
Energy Markets). The results indicate that a wind penetration
of 28.1% in the Portuguese system yielded an average price
reduction of about 17 €/MWh during the first half of 2016.
The highest reduction in the study period, about 25 €/MWh,
was observed in January, which was a particularly windy
month. The merit-order effect for one time period (2 January
2016, 7 p.m.) is illustrated in Figure 2; a larger penetration
of renewables shifts the supply curve to the right, thereby
reducing the energy prices from P to P*.
The second study focused on the Northern European
system (including the Nordic countries, the Baltic countries, Poland, and Germany) and was conducted by the VTT
Technical Research Centre of Finland through a combined
investment and operation modeling approach linking the
Balmorel and WILMAR-JMM models. Specifically, a sensitivity analysis on the share of variable renewable energy
(VRE) resources was performed, while the portfolio of conventional generation technologies was optimized considering two different time horizons (2030 and 2050). Figure 3
presents the results of this analysis, where (a) and (b) correspond to a 40% and 60% share of VRE, respectively, while
both include the current VRE share in the region (22%) for
reference. The merit-order effect is evident in both graphs:
increasing the VRE share from the current level to 40% and
(especially) to 60% reduces the energy prices substantially.
Interestingly enough, the prices in 2050 are higher than in
2030, especially in the 60% VRE share case; this is due to
january/february 2021	

10,000

2030: 22% VRE
2030: 40% VRE
2050: 22% VRE
2050: 40% VRE

100

50

0

0

25

50
Time (%)
(a)

75

100

150

Price (€/MWh)

Merit-Order Effect
in the European
Electricity System

200

Price (€/MWh)

preserving the security of supply.
More importantly, a large increase
in the total low-carbon generation investment costs is expected
(despite the reducing unit costs of
renewables) to achieve the ambitious carbon reduction targets. Furthermore, the decarbonization of
end-demand segments (e.g., heating, transport, and industry) will
also require significant investment,
and appropriate energy policy initiatives will need to be developed.

2030: 22% VRE
2030: 60% VRE
2050: 22% VRE
2050: 60% VRE

100

50

0

0

25

50
Time (%)
(b)

75

100

figure 3. Price duration curves in the Northern European
system for a 22% VRE share [dashed lines in both (a) and
(b)], a 40% VRE share [solid lines in (a)], and a 60% VRE
share [solid lines in (b)].

the fact that a large part of the existing baseload thermal
generation capacity, although remaining in the system until
2030, is expected to retire before 2050.
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55
IEEE Power & Energy Magazine - January/February 2021

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