Economic theory predicts that the increase of renewable electricity production should reduce the price of electricity in the short-run, which is also known as the ‘merit-order effect’. Although the merit-order effect is only one of several consequences of renewable production on the electricity system, it is crucial to determine its size for the economic evaluation of renewable energies. In this paper we present a comprehensive overview of relevant past research results on the price effect of renewables. Additionally, we conduct a new empirical analysis of the price effect of renewable production for the Austrian-German region, a market that clearly qualifies for a merit-order effect analysis given its characteristics. Based on the review and our own analysis, we show that the merit-order effect varies depending on the region and the assessment method chosen. We also find that the size of this effect is less dispersed throughout different markets than previously suggested by the literature.
Keywords: Wind; Solar; Merit-order; Supply
Energy Economics. Volume: 40 Issue: 1 Pages: S159-S171
Journal Impact Factor: JCR impact factor 3.910 (2017)
DOI reference: 10.1016/j.eneco.2013.09.011
Published on paper: December 2013. Published on-line: September 2013.